By Takahiko Wada and Leika Kihara
TOKYO (Reuters) - Japan will urge its G20 counterparts at a meeting next week to beef up efforts to prevent cryptocurrencies from being used for money laundering, a government official with direct knowledge of the matter said.
But the prospects for the G20 finance leaders to agree on specific global rules and mention them in a joint communique are low, given differences in each country's approach, the official said, a view echoed by another official involved in G20 talks.
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"Discussions will focus on anti-money laundering steps and consumer protection, rather than how cryptocurrency trading could affect the banking system," one of the officials said.
"The general feeling among the G20 members is that applying too stringent regulations won't be good."
Finance ministers and central bankers of the Group of 20 major economies will meet in Buenos Aires on March 19-20, with cryptocurrencies set to be on the agenda.
The Paris-based Financial Action Task Force (FATF), a 37-nation group set up by the G7 industrial powers to fight illicit finance, will report to the G20 its findings on ways to keep cryptocurrencies from being used for money laundering.
Japanese policymakers fear that while there is broad consensus among the G20 nations on the need for such steps, some nations have looser regulations than others, which leaves loopholes for money laundering, the official said.
Japan was the first country to adopt a national system to oversee cryptocurrency trading, although it carried out checks on several exchanges this year after the theft of $530 million from one exchange, Coincheck Inc.
France and Germany have said they will make joint proposals to regulate the bitcoin cryptocurrency market. A head of the European Union's watchdog said a short-term strategy could be to focus on applying anti-money laundering and terrorist financing rules, warning consumers of the risk of trading in cryptocurrencies and preventing banks from holding them.
The trick would be to apply regulations to protect consumers and prevent illicit activity, without stifling innovation in the fast-growing crypto-currency and fintech sectors, the Japanese officials said.
(Editing by Sam Holmes and Neil Fullick)