Japan's "self-regulation experiment" for its digital asset sector is unraveling as disagreements between financial regulators and the industry advocacy body deepen, according to a Financial Times report.

• The newspaper conducted "extensive interviews" with industry executives, lawyers and financial regulators who "sounded the alarm over a spiraling regulatory crisis in Japan’s multibillion-dollar virtual asset business."

• The Financial Services Agency, the country's financial watchdog, has "repeatedly criticized" the Japan Virtual Currency Exchange Association (JVCEA), an advocacy group set up in 2018 to promote self-regulation in the crypto industry, the report said.

• Meeting minutes obtained by the Financial Times showed that the JVCEA received an “extremely stern warning” from the FSA in two meetings last year. The regulator was concerned about delays in anti-money-laundering regulation and that it wasn't privy to deliberations and decision-making processes of the association, according to the report.

• The minutes also showed the FSA saw a lack of communication between JVCEA leadership and members, resulting in "poor management." The association is made up of about 40 digital asset firms representing the industry.

• According to the report, the secretariat of the JVCEA formed a union for protection in what the report calls "a stunning act of defiance for Japan."

• JVCEA board member Masao Yanaga told the newspaper that the JVCEA lacked resources and that AML regulations were hard to implement because of a lack of international agreements on sharing data.

• The JVCEA also said it was making improvements in response to the regulator's concerns.

• Regulators around the world are scrambling to ensure sturdy rules are in place after the recent market downturn saw a number of high-profile crypto companies collapse and $2 trillion wiped out of crypto markets in a matter of weeks.

Read more: How Not to Run a Cryptocurrency Exchange