Japan has been one of the most supportive jurisdictions for crypto assets, recognizing them as legal tender and establishing a regulatory framework for their exchange and custody. We will explore some of the key features of Japan’s crypto-asset regulation, as well as the challenges and opportunities that lie ahead for this innovative sector.
One of the main pillars of Japan’s crypto-asset regulation is the Payment Services Act (PSA), which was amended in 2016 to include provisions for crypto-assets. The PSA defines crypto assets as “property value that can be used for payment to unspecified persons, that can be transferred using an electronic data processing system, and that is not denominated in any legal currency”.
Under the PSA, crypto-asset exchange service providers (CESPs) are required to register with the Financial Services Agency (FSA), the main regulator of crypto-assets in Japan. The FSA imposes various obligations on CESPs, such as capital requirements, segregation of customer funds, anti-money laundering measures, cybersecurity standards, and disclosure of fees and risks.
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Another important piece of legislation for crypto-assets in Japan is the Act on Settlement of Funds (ASF), which was also amended in 2016 to accommodate crypto-assets. The ASF regulates the issuance and sale of prepaid payment instruments, such as gift cards and vouchers.
Crypto assets that are issued by a specific entity and can only be used within a limited network of merchants who fall under this category. These crypto assets are subject to different rules than those under the PSA, such as lower capital requirements and less stringent reporting obligations. However, they are also subject to more restrictions, such as a maximum issuance amount of 100 million yen and a prohibition on resale or exchange.
In addition to these two laws, Japan has also introduced other regulations and guidelines for crypto assets, such as taxation rules, accounting standards, self-regulatory codes of conduct, and consumer protection measures. Japan has also been actively involved in international cooperation and coordination on crypto-asset issues, such as participating in the Financial Action Task Force (FATF) recommendations and the G20 discussions.
Japan’s crypto-asset regulation has been praised for its clarity and comprehensiveness, as well as its balance between innovation and protection. Japan has also been able to foster a vibrant and diverse crypto-asset ecosystem, with many domestic and foreign players offering various products and services. According to a report by Coinhills, Japan ranked second in the world in terms of crypto-asset trading volume in 2020, behind only the United States.
However, Japan’s crypto-asset regulation also faces some challenges and limitations, such as adapting to the fast-changing and complex nature of crypto-assets, ensuring effective supervision and enforcement, addressing cross-border issues and conflicts of laws, and enhancing public awareness and education. Japan also needs to cope with the increasing competition from other jurisdictions that are developing their own crypto-asset frameworks, such as Singapore, Switzerland, and Malta.
Japan has been one of the most supportive jurisdictions for crypto assets, but it is not resting on its laurels. Japan is constantly reviewing and updating its crypto-asset regulation to keep pace with the evolving market and technology trends, as well as the emerging risks and opportunities. Japan aims to maintain its leading position in the global crypto-asset landscape, while ensuring the safety and soundness of its financial system and the protection of its consumers.
