Japan’s Financial Services Agency mulls capping crypto margin trading

In a bid to curb speculation and risk in cryptocurrency trading, Japan’s financial regulator is considering capping cryptocurrency margin trading, Nikkei reported.

While cryptocurrency exchanges in Japan are required to register with the Financial Services Agency (FSA), there is a lack of clear regulations governing cryptocurrency transactions.

The FSA recently updated and released the documents it requires for firms applying for a cryptocurrency exchange license, CoinDesk reported October 24. The details which the firms would now have to provide include their platform’s crypto reserves, offered trading pairs, security measures, and maximum leverage ratio in margin trading, among others.

Currently, 7 of the 16 FSA-registered crypto exchange operators offer margin-trading platforms. Certain crypto exchanges are voluntarily capping leverage at 25 times the deposit, emulating foreign exchange margin trading rules. Experts are reportedly now proposing caps between 2 and 4 times for cryptocurrencies.

A lower leverage cap is recommended for cryptocurrencies given their high volatility. According to Nikkei, an FSA panel is going to discuss new rules for possible legal changes.

The FSA recently approved Japanese Virtual Currency Exchange Association (JVCEA), a crypto exchange group formed earlier this year following Coincheck hack, as a self-regulatory industry body. The JVCEA sets a leverage limit of 4 to 1.

"This is just a provisional measure -- I don't think a ratio of 4 is adequate," said Taizen Okuyama, the Money Partners Group president who heads the association.