The Financial Services Agency (FSA) in Japan, the main financial regulator, has provided clarity on peer-to-peer (P2P) cryptocurrency transactions. In a letter dated February 14, the FSA advised local banks to bolster user protection by ceasing transfers to crypto-asset exchange service providers when the sender’s name differs from the account name. This decision raises worries about its effects on P2P transfers, typically involving different users on both ends.
The FSA responded to an inquiry, emphasizing that its recommendation does not pertain to transactions between individuals.
“We issued the request with the aim of asking banks and other financial institutions to strengthen measures against unlawful money transfers in cases where an individual deposits cash from the individual’s bank account to an account of a crypto asset exchange service provider.”
The FSA illustrated a scenario involving a potential fraudster persuading a victim to change their name to deposit funds into the fraudster’s crypto account. The new recommendation, however, mandates banks to block suspicious transactions where the sender requests a name change to deposit into a crypto platform.
The FSA noted that several financial institutions have already implemented these measures, although no concrete cases prompting concerns over crypto asset markets have been reported to the agency.
Importantly, the FSA’s recommendations are not universally mandated for all financial institutions. Instead, banks are expected to assess their specific circumstances and decide on appropriate measures accordingly.
Meanwhile, South Korea, Japan’s neighbor, is also proactively addressing crypto fraud. The country’s Financial Intelligence Unit plans to introduce a preemptive trading suspension system for suspicious transactions on platforms already operating in the country. This system will freeze transactions, even during the pre-investigation phase.
These regulatory developments indicate a growing focus on enhancing security measures in the cryptocurrency space, with authorities in Japan and South Korea taking proactive steps to protect users and prevent fraudulent activities. The FSA’s approach emphasizes the importance of aligning measures with individual circumstances, allowing flexibility for financial institutions to implement appropriate safeguards.
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