Japan’s leading financial regulator, the Financial Services Agency (FSA), is urging institutions to place tighter scrutiny on crypto transfers, according to an official note published today.

The joint note by the FSA and the country’s National Police Agency (NPA) refers to a high number of cases of “specialized fraud” in addition to “many cases of damage caused in internet banking by unlawful money transfers.” According to analysis by the NPA, the majority of felonies involve crypto.

The two authorities are now urging Japan’s financial institutions to strengthen user protections, especially in money transfers to crypto service providers.

The note provides two guidelines whereby institutions can step up scrutiny. One measure entails freezing transfers to crypto exchanges “if the sender’s name is different from the account name.” The other encourages greater surveillance of “unlawful transfers” to crypto exchanges.

Japan’s Central Bank, FSA Prepare For Crypto

While Japan doesn’t have a comprehensive framework in place for regulating crypto, there are strong indicators that it is preparing for greater adoption.

The central bank, Bank of Japan (BoJ), is readying a pilot for a Japanese central bank digital currency (CBDC). CBDCs are centrally issued digital assets pegged to a country’s legal tender. They tend to be issued on blockchains, or other distributed ledger systems.

Last December, the Japanese government and the BoJ held their first meeting to discuss the CBDC’s “system design.” They also discussed legislative amendments that would pave the way for the digital yen. Both the bank and the government promised to pass legislation this spring.

Earlier this month, the FSA proposed a legislative amendment to help facilitate the development of decentralized autonomous organizations (DAOs) in the country. DAOs use smart contracts to mimic the governance of a shareholder-run company for crypto token-holder communities.

The proposal designates potential DAO tokens as “Limited Company Type DAO Employee Rights Token,” granting holders the same legal rights as regular limited liability company (LLC) members.

The regulator is currently seeking public comments on the proposed amendment until March 4th.

Finally, local authorities for the city of Kochi signed a deal on February 7 to virtualize the city on the Japanese Start Land metaverse application. It hopes to receive its first online tourists later this summer.

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