The decision was made following a close review of relevant laws from December 2022, when the Financial Action Task Force (FATF) found existing measures to be insufficient. The most important regulatory change will involve the addition of the FATF Travel Rule, which requires financial institutions to provide detailed information about their customers’ transactions, including all their registration data such as names and addresses.
The move comes in the context of Japan’s ongoing efforts to fight money laundering in the crypto sector. Tightening the rules could also support greater transparency in cryptocurrency transactions on a global scale, while Japan stands to improve its position in the cryptocurrency industry, providing greater confidence to both investors and users.
According to coinspeaker.com, Japan has some of the strictest cryptocurrency regulations in the world, as this was one of the first countries to legalise the use of cryptocurrencies. Japan is now gearing up to introduce even stricter measures against money laundering (AML) in cryptocurrency transactions starting from 1 June 2023.
The Travel Rule, otherwise known as the FATF Recommendation #16, mandates that virtual asset service providers (VASPs) report on user transactions exceeding amounts of USD 1,000. However, this limit varies from country to country depending on local regulations.
The stricter set of rules for cryptocurrency transactions comes in the context of several hacks and market manipulation attempts by bad actors, some of which have used digital assets to fund activities such as terrorism or sending money to sanctioned nations.
The FATF Travel Rule was designed to aid law enforcement agencies in tracking cryptocurrencies. However, the rule is somewhat controversial due to its exposure of user data, which is why governments are looking to implement security measures that protect those who use cryptocurrencies on a daily basis as an alternative to fiat money and not for illegal activities.
In May 2023, US-based crypto pre-transaction decision-making platform Notabene launched SAFE implementation phases for the Travel Rule. The SAFE implementation phases put forward by Notabene aim to assist companies facing challenges when trying to become compliant. According to Notabene, these challenges are mainly caused by the unclear nature of the regulation and the differences in timelines and requirements for jurisdictional rollout.
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