Japan considers allowing banks to hold and trade Bitcoin

The Financial Services Agency of Japan is studying the possibility of allowing banks to hold and trade cryptocurrencies like Bitcoin for investment purposes, which would change the long-standing regulatory framework of the country's banking industry.

On October 21, Japanese media reported that the Financial Services Agency plans to establish a system that enables banks to buy and sell cryptocurrencies just like trading stocks and government bonds. The agency will soon begin discussions through a working group of the Prime Minister's Advisory Council on Financial Systems.

This move aims to respond to the growing popularity of cryptocurrencies as financial products both domestically and internationally. However, the Financial Services Agency also plans to impose specific regulatory measures to ensure the financial soundness of banks.

It is reported that cryptocurrency trading within Japan is expanding. Data from the Financial Services Agency shows that as of the end of February, the number of cryptocurrency accounts in Japan has exceeded 12 million, an increase of about 3.5 times compared to five years ago.

Banks May Be Able to Provide Trading Services Directly

The Financial Services Agency will also consider allowing banking groups to register as cryptocurrency asset trading service providers, which is a necessary condition for providing cryptocurrency trading and exchange services.

Reports indicate that by allowing reputable banking groups to enter this market, the Financial Services Agency hopes to create an environment that makes it easier for individual investors to participate in such investments. This could bring more institutional-level compliance and credibility to the cryptocurrency market.

As the trading of cryptocurrencies as financial products continues to expand both domestically and internationally, regulators are seeking to establish a regulatory framework that aligns with market developments.

Current Regulatory Framework Poses Restrictions on Banks

According to reports, under the revised regulatory guidelines by the Financial Services Agency in 2020, banking groups are currently effectively prohibited from purchasing cryptocurrencies for investment purposes. This restriction stems from the high volatility risks associated with cryptocurrencies.

Cryptocurrencies like Bitcoin, which lack underlying asset support, exhibit price volatility far exceeding that of traditional financial products like stocks. Holding large amounts of such assets could lead to losses in the event of a sharp price decline, thereby worsening the financial condition of banks.

Even if banks are allowed to hold and trade cryptocurrencies in the future, the Financial Services Agency is expected to impose regulatory measures that consider the potential impact on the financial health of banks.

The working group is expected to discuss establishing a risk management framework for cryptocurrencies. Regulators need to find a balance between opening market access and maintaining financial stability