FATF Begins Inspection on Anti-Money Laundering Measures at Japanese Entities on October 28

The Financial Action Task Force (FATF), an international organization dedicated to anti-money laundering measures,

began undertaking an assessment at the Japanese government and financial institutions in Tokyo on October 28. It was reported that companies that operate cryptocurrency exchanges are also subject to evaluation, with the FATF conducting interviews at the Japanese government and approximately 20 financial institutions over the next three weeks. The results of the assessment will be made public in summer 2020. The FATF will investigate banks, securities companies, and insurance companies to see whether they have sufficient measures in place to confirm customer identity, report transactions that may be money laundering, and prevent fraudulent remittances. Additionally, the organization will investigate cryptocurrency exchange operators as managers of new financial assets to see whether their measures are sufficient to deter exploitation of these assets by criminal organizations. This marks the first time that Japanese cryptocurrency exchange operators will be subject to an evaluation by the FATF.

A previous audit was conducted in Japan in 2008, however the entirety of financial institutions in Japan received a harsh assessment, requesting improvements for 25 out of the 49 audited items for anti-money laundering and counter-terrorism financing (10 items demonstrated insufficient countermeasures and 15 items demonstrated only partial implementation of countermeasures). In the past, only 5 countries out of the 23 that underwent assessment by the FATF assessments required strict monitoring with regular follow-ups: United Kingdom, Spain, Italy, Portugal, and Israel. However, this does not imply that the countermeasures at Japanese institutions are in an exemplary state.

The FATF’s Recommendations carry significant weight and apply to over 190 countries and regions around the world. Should Japan be assessed as a “high-risk” or “uncooperative” country by the FATF, financial institutions in other countries may apply closer scrutiny when working with Japan’s financial institutions, leading to delayed trade or avoiding deals with Japan altogether. The Japanese government may be undertaking this recent assessment to regain trust and dispel concerns in international trade matters.

Cryptocurrency service providers in Japan have already begun introducing a registration system for registering as an operator with the Financial Services Agency (FSA), however it is thought that the regulating agency will further evaluate the initiatives of cryptocurrency exchange operators in Japan and propose measures for improvement. There are 20 companies registered with the FSA as cryptocurrency exchange operators, but companies that are not under the umbrella of major listed corporations and thus do not have abundant capital or human resources are mixed among those registered. Going forward, it can be expected that the fate of these registered companies will be split between those with resources capable of addressing requested operational improvements and those unable to keep up.

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