Japanese Regulator Suggests it May Be Preparing to Police DeFi

DeFi Japan

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Tim Alper

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Tim Alper

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Tim Alper is a British journalist and features writer who has worked at Cryptonews.com since 2018. He has written for media outlets such as the BBC, the Guardian, and Chosun Ilbo. He has also worked...

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June 26, 2023 06:56 EDT

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The top Japanese financial regulator has given a hint that it may be preparing to attempt to police the decentralized finance (DeFi) sector.

The Financial Services Agency (FSA) issued a call for DeFi players to take part in a “fact-finding survey” on the sector.

The FSA wants to “research” its “understanding” of “actual conditions” surrounding “on-chain and off-chain” data management “in decentralized financial systems.”

The agency asked would-be contributors to the initiative to register their interest in the form of a “bid,” with a deadline of December 9.

The FSA also said it would “hold a briefing session” on its planning for what it called a “competition” on Friday, December 2.

While this may seem somewhat encouraging for the DeFi sector, past evidence suggests that it is more likely that the FSA is actually looking to regulate the sector – but first needs to learn more about how it works.

What Signs Are There that Japan Wants to Regulate DeFi?

The FSA regulates the crypto sector and has been effectively given carte blanche to make legislative changes to the country’s law. It has already imposed some of the most rigid rules in the world on the nation’s crypto exchanges, which it began supervising in 2017. It has also issued several sets of stablecoin-specific guidelines.

In most crypto-related cases, the FSA has followed a similar pattern: It first seeks to learn more about the sector by launching so-called “study groups,” often with private sector participation. These groups then provide reports. The FSA then tends to seek direct dialog with industry players. And, finally, the body usually issues guidelines or requests for legislative action.

As yet, the FSA has had relatively little to say about DeFi. But the new “competition” could see it establish links with Japanese DeFi players, eventually leading it to seek ways to police the sector.

Earlier this year, the FSA commissioned a consultancy affiliate of the domestic tech giant NTT Data to produce a report on the status of DeFi. The result was a 161-page report that was submitted to the FSA in June.

The domestic media outlet CoinPost reported that FSA-led “discussions” are currently underway on other crypto-related matters. Talks are now seeking to “clarify criteria used to judge whether digital items such as non-fungible tokens (NFTs) can be classified as cryptoassets.