Japan, arguably the world’s leader in cryptocurrency regulation, is set to drop more rules on the industry by capping leverage trading on cryptocurrency exchanges.
Japanese regulators approved on Friday amendments to Japan’s financial instruments and payment services laws that limit the amount of leverage cryptocurrency exchanges may offer users when margin trading. The cap will now be two-to-four times initial deposits — in line with foreign exchange (forex) trading — according to a report from Nikkei Asian Review.
As expected, cryptocurrency exchanges that offer margin trading will now be required to obtain approval from the Japanese government via registration. The registration process, however, will be distinctly different from the already-existing process created in 2017 that officially recognized digital currencies as legal tender.
The new regulations will force cryptocurrency exchanges to accept monitoring in line with securities traders.
The regulatory move comes after speculative trading on margin started booming last year. As noted by the report, the Japan Virtual Currency Exchange Association claims the country reached 8.42 trillion yen in total margin trading in December of last year — approximately 11x the total amount of cash transactions.
The new rules aren’t going to be immediately implemented, however. Rather, they will start being enforced in April 2020, and Nikkei reports that “exchange operators would need to be registered within 18 months of that date.”
Japan became a world-leader in cryptocurrency-exchange regulation following the high-profile heist of roughly 500 million NEM (XEM) coins worth half a billion dollars from Coincheck. The Financial Services Agency stepped in and forced cryptocurrency exchanges to register and implement higher quality security measures to protect user funds and safeguard against future hacks.