Seminar of the Japan Finance Agency: Exchanges Need to Strengthen Customer Capital Management to Prevent Employees from Seeking Private Benefits
Bianews reported yesterday that Japan's Finance Agency held its sixth "Seminar on Encrypted Money Exchanges" from 15:00 to 17:00 Beijing time.
The meeting is currently more focused on encrypting currency trading rules, dealing with currency issues, strengthening the management and preservation of customer assets (encrypting currency theft risks and exchange failure risks), curbing risks associated with speculative transactions, ensuring transparency in transactions, and preventing employees from seeking personal gain. Prominent and urgent practical issues are discussed.
Officials of the Consumer Policy Department, the Minister of Justice, the Cabinet Credit Agency, the Industrial Capital Department of the Bureau of Economic and Industrial Policy, the Financial Science and Technology Center of the Bank of Japan Settlement Agency, the Criminal Proceeds Transfer Prevention Countermeasure Room of the Criminal Bureau of the Police Department, the University of Tokyo, Kyoto University and Lize University, etc. Experts and scholars, Tokyo Contract Law Firm, Japan Securities Association and other institutions, enterprise representatives, the President of Japan Virtual Monetary Exchange Association and so on all participated in the meeting and discussed.
Bianews compiled the meeting to discuss the material and summarized the main points of the meeting as follows:
On the question of whether the encrypted currency is applicable to the financial management law, and in view of the diversity of the ways in which the encrypted currency is used, the Meeting held that the various acts of encrypted currency should be used and whether it has the financial (monetary) function.
In the case of identifying financial functions, the meeting held that the financial management law should be introduced on the basis of considering the development of encrypted currencies, the promotion of speculation and the advantages and disadvantages of society.
In the case of the introduction of the Financial Management Act, the need to protect customers and the legitimacy of encrypted currency transactions affecting the financial system, as well as the ability to ensure their implementation, should be taken into account when discussing specific rules.
On this basis, the seminar put forward three specific discussions.
This study will discuss specific directions.
1. Rules for the encryption trade (payment and settlement means and aspects of speculation)
2. Rules on Encryption of Derivatives Trading (Investment and Risk Hedging and Aspects of Speculation)
3. Rules for token issuing projects (as a means of investment financing and as a subject of speculation)
The discussion on 3 October focused on the first item, and the latter two items will be discussed at a follow-up meeting.
Rules for the encrypted trading industry:
On the basis of the capital settlement method, the exchange must comply with the following rules for the purpose of protecting its users and its status quo:
1. Internal management is complete, including operation management, system management and network security countermeasures.
2. Provide users with the necessary information, including reminders that encrypted currencies are not legal tenders, the risk of loss due to price changes in the absence of value preservation, handling fees, and the way in which exchanges manage customer assets separately.
3. Rules on Minimum Capital and Net Assets: Minimum capital is over 10 million yen and net assets cannot be negative.
4. Differentiated management of customer assets and corporate assets: the money portion needs to be stored in different accounts or managed by trusts; the encrypted currency portion needs to be clearly distinguished from the encrypted currency held by the company, or managed under circumstances where the number of encrypted currencies held by the customer can be clearly distinguished.
In addition, the following aspects should be considered: dealing with problematic currencies; strengthening the management and preservation of customer assets (encrypting the risk of currency theft and the risk of exchange failure); restraining the risks associated with speculative transactions; ensuring transparency in transactions and preventing employees from seeking personal gains.
Handling of troubled currencies
There are various designs and rules for encrypted currencies. Among them, there are encrypted currencies with high anonymity that do not disclose their transfer records, and encrypted currencies that are fragile in maintaining and updating transfer records.
Therefore, from the perspective of protecting the interests of customers and the legitimate reliability of exchanges, exchanges should consider prohibiting encrypted currencies that may affect them.
On the other hand, the security of virtual currencies may vary depending on the internal discussions and mining conditions of the agreement. In addition, there may be new problems that cannot be conceived because of technological innovations, and such changes may occur abruptly. Because of these factors, it is difficult to define the encrypted currency that may be problematic in advance by decree or other means.
While it is also important to ensure collaboration with self-regulatory rules and to ensure flexible and flexible responses, it is also important to consider what corresponding frameworks are effective.
For example, the self regulatory rules of Japan's Industry Association for encrypted currency transactions mentioned this:
1. It is forbidden to encrypt money due to problems with association members.
2. If members operate new encryption currencies, they need to declare the association in advance. Members may not operate the encrypted currency if the association dissenters.
3. The association will disclose the outline of the encrypted currency for exchange transactions.
Strengthening the risk of theft of customer encrypt assets
Exchanges typically store most of their customer assets in cold wallets (keys are managed offline). However, in order to liquidity of assets and cope with the withdrawal of customers'funds, the exchange will deposit part of the customer funds in the key online management hot wallet for management.
Whether it's Coincheck, the biggest theft ever in the encryption world, or Zaif, the most recent, all of its stolen encryption money comes from hot wallets.
For this risk, the exchange should establish a complete network security system and countermeasures, whether there are other aspects of countermeasures. In addition, the exchange should also publish a complete set of compensation rules and standards, and prepare adequate compensation reserve, in the operation of the net assets to maintain the scope of compensation can be considered.
In addition, there are also exchanges should be separated from the management of user assets, the management of user assets to the exclusive authority of management companies or institutions.
The meeting held that the following issues should also be considered in the case of the management of specialized agencies.
1. Whether the risk of cyber attack and theft of customer assets will be reduced or the targets of cyber attack will be more clearly and centralized, thus increasing the risk, compared with those managed separately by exchanges.
2. Who will bear the cost and manpower of the management organization, whether it can be expected to be managed by enough trustworthy people, whether it can function as a system, etc.
Strengthening the risk of exchange failure
The Capital Settlement Law, including the Trust Law, provides for the separate management of corporate assets and customer assets of financial industry companies. While the judicial status of the encrypted currency industry is not clear, at least from the point of view of preventing the misappropriation of customer property in the past cases of exchange bankruptcy, as a classified management method of encrypted currency, it provides for strengthening the risk of exchange failure.
From a supplementary point of view, for encrypted exchanges, classified management supervision and financial statement supervision are required through certified public accountants or supervisory legal persons.
In addition, the Financial Commodity Exchange Act provides for the bankruptcy isolation of securities trust management companies from their clients'funds. In the absence of a separate management of client funds and corporate funds by the securities trust management company, even if the company goes bankrupt, client funds are protected by bankruptcy isolation. Similarly, because the legal status of the encrypted currency industry is not clear, whether the bankruptcy isolation is applicable to the encrypted currency industry is still under discussion.
Curb speculative trading risks
It was pointed out that speculative trading in encrypted currencies with expected returns was fuelled by investments in encrypted currencies through active advertising activities on exchanges, and that there were insufficient awareness of the risks of encrypted currencies among the customers who carried out such transactions.
From the point of view of restraining customer risk and speculative trading, we can consider forbidding exchange enterprises to do the following.
Exaggerating advertisements, false advertisements, providing assertive judgments and investment persuasion without the initiative of customers.
From customers' knowledge, experience and so on, the customers consider inappropriate suggestions.
Promoting advertising and persuasion in speculative trading.
Ensure transparency of transactions and prevent employees from seeking personal gain
In the Financial Commodity Exchange Law, there are unfair trading restrictions on the fairness of commodity prices, such as the obligation to disclose the price information of the financial commodity exchange and the prohibition of illegal activities. In the field of encrypted money, there are no similar provisions.
Under such circumstances, users will be able to trade at an unsuitable price.
On this issue, the meeting took into account the difficulty in calculating the value of encrypted currency transactions, which are different from general financial commodities such as stock and bonds, and considered it important to improve currency price transparency and prevent exchange staff from seeking private interests.
When dealing with customers, the exchange shall provide or disclose any or more of the following information:
1. The purchase price and selling price offered by the exchange itself and the difference between them.
2. The agreed price and the range of acceptable price fluctuations for point-to-point transactions between clients separately provided by the exchange, and the difference between the agreed price and the exchange's own bid price
3. Based on the agreed price and fluctuation range of point-to-point transactions offered by exchanges at home and abroad, the standard price calculated by certification associations and others, and the difference between the standard price and its relative transaction price
In order to ensure the transparency of the transaction and prevent the employees from seeking personal benefits, the best choice for the customer should be formulated and made public when the scheme of plural trading channels is provided to the customer, and the legitimate compliance should be guaranteed.
In the case of point-to-point transactions between customers, if the exchange chooses to become the trading object of customers or participate in transactions for liquidity supply and other reasons, it should explain to the users the reasons for its optimal selection.
Stimulated and warned by the recent theft of the Zaif Exchange, the sixth meeting of the Seminar on Encrypted Money Exchanges of the Japan Monetary Agency focused on the management of customer funds and put forward more specific management rules and countermeasures.
Handling of troubled currencies;
Enhanced management and preservation of customer assets (encrypted currency theft risk & amp; exchange failure risk);
The risk associated with speculative trading is inhibited.
Ensure transparency of transactions and prevent employees from seeking personal gain.
Especially due to the Coincheck incident at the beginning of the year and the Zaif incident recently, the stolen encrypted currencies came from the exchange's customer holdings in hot purse management. The seminar also highlighted the exchange's separate management of hot and cold purses on customer funds.
Whether these internal and external rectifications will stop the pace of theft of Japan's encrypted currency exchanges will remain to be seen.
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