Japan regulates cryptocurrency

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While digital data is inherently free and easy to copy, NFTs are considered innovative because they involve creation of unique, one-of-a-kind data based on blockchain technology. However, as the legal status of NFTs is still unclear, significant legal issues will likely arise in the event of unforeseen circumstances, such as the hacking of NFTs or disputes over the rights of authors and purchasers of NFTs. In the report, the BOJ also mentioned that it may, through feasibility studies, verify the possibility of using CBDCs as cash equivalents.

A person who conducts CAES without registration will be subject to criminal proceedings and punishment. Though the definition is complicated, in short, a cryptocurrency that is usable as a payment method to an unspecified person and not denominated in a fiat currency falls under the definition of Crypto Asset. For example, prepaid e-money cards usually fall under Currency Denominated Assets. If a coin issued by a bank is guaranteed to have a certain value of a fiat currency, such a coin will likely be treated as a Currency Denominated Asset rather than a Crypto Asset.

Under this initiative, Crypto Assets that meet all of the following four conditions, in light of the general manner in which Crypto Assets are handled by domestic member CAESPs, will be registered in the Green List System. In Japan, due to a series of incidents involving leakage of Crypto Assets from CAESPs, strict regulations have been introduced for the protection of user property. In the area of Crypto Asset management, stringent rules, as set forth below, have been put in place to protect users from leakages of Crypto Assets and from the bankruptcy of a CAESP:.

In addition to the above, CAESPs are required to have their segregation of fiat currency and Crypto Assets audited annually by a certified public accountant or auditing firm. Accordingly, any foreign entity wishing to register as a CAESP must establish either a subsidiary in the form of kabushiki-kaisha or a branch in Japan. However, there are no cases where registration in the form of a branch has been approved by the FSA. So far, all foreign CAESPs have established subsidiaries in Japan and have obtained registration of those subsidiaries.

In addition, applicants must have: a a sufficient financial base i. During the registration process, the FSA will request for applicants to complete a checklist consisting of more than questions, in order to confirm that the applicants have established internal systems for the proper and secure provision of CAES. In addition, the FSA will separately prepare a detailed progress chart to confirm the checking process. In order to proceed with such a registration process, it is necessary to add a number of executives and employees with practical experience in Japanese financial institutions to the organisational chart, to develop dozens of internal regulations equivalent to those of financial institutions, to invest in systems to ensure that the services provided are appropriate, and to go through checks by the FSA.

There are various types of tokens issued by way of ICO, and Japanese regulations applicable to ICOs vary according to the respective schemes. In accordance with current practice, i if the tokens issued via ICO are already dealt with by Japanese or foreign exchanges, such tokens would be considered to fall within the definition of Crypto Asset under the PSA based on the rationale that exchange markets for such tokens must already be in existence, and ii even if certain tokens are not yet dealt with by Japanese or foreign exchanges, in a case where the token issuer does not give substantial restrictions prohibiting such tokens from being exchanged with Japanese or foreign fiat currencies or Crypto Assets, such tokens would likely fall within the definition of Crypto Asset under the PSA.

Recently, in July , Coincheck Inc. This is the first authorised IEO in Japan. According to the ICO Rules, there are two types of ICO, which can be described as follows: i an Exchange Provider issues new tokens and sells such tokens by itself; or ii a token issuer delegates Exchange Providers to sell the newly issued tokens.

This clarified the scope of tokens governed by the FIEA. Specifically, the concept of ERTRs relates to the rights set forth in Article 2, Paragraph 2 of the FIEA that are represented by proprietary value that is transferable by means of an electronic data processing system but limited only to proprietary values recorded in electronic devices or otherwise by electronic means , excluding those rights specified in the relevant Cabinet Office Ordinance in light of their negotiability and other factors.

CISIs are deemed to have been formed when the following three requirements are met: i investors i. As a result of the application of disclosure requirements to ERTRs, issuers of ERTRs are in principle required, upon making a public offering or secondary distribution, to file a securities registration statement and issue a prospectus. Any person who causes other persons to acquire ERTRs or who sells ERTRs to other persons through a public offering or secondary distribution must deliver a prospectus to such other persons in advance or at the same time.

The FIEA regulates Crypto Asset Derivatives Transactions by stipulating certain regulations in respect of Crypto Asset Derivatives Transactions, in order to protect users and ensure that such transactions are conducted appropriately.

Further, under the FIEA, prices, interest rates, etc. Accordingly, business operators engaging in these transactions need to undergo registration as FIBOs in the same way as business operators engaging in foreign exchange margin trading. It should be noted that, traditionally, the registration requirements under the FIEA are not applicable to non-securities-related Derivatives Transaction services provided to certain professional customers. However, the registration requirements will be applicable to Crypto Asset Derivatives Transactions, regardless of the type of customers involved, in light of the high-risk nature of Crypto Asset Derivatives Transactions.

Such professional entities are:. The FIEA contains the following prohibitions against unfair acts the conduct of which is punishable by penalties in respect of Crypto Asset spot transactions and Crypto Asset Derivatives Transactions, regardless of the violating party:. However, insider trading is not regulated under the FIEA at this moment in time, due to difficulties in formulating a clear concept of Crypto Asset issuers, as well as the general inherent difficulties associated with the identification of undisclosed material facts.

No consumption tax is imposable on the sale or exchange of Crypto Assets. However, consumption tax will be levied on lending fees and interest on Crypto Assets. Furthermore, inheritance tax will be imposed upon the estate of a deceased person in respect of Crypto Assets that were held by such person. Under Japanese law, only licensed banks or fund transfer business operators are permitted to engage in the business of money remittance transactions.

However, if the remittance transaction of a Crypto Asset includes the exchange of fiat currencies in substance, such transaction will likely be deemed a money remittance transaction. Further, issuance of stablecoins, which are pegged to fiat currency, would be deemed engagement in money remittance transactions. By utilising this scheme and using sidechain and atomic swap technology, test projects were conducted to establish a platform that enables simultaneous delivery of Crypto Assets and settlement in fiat currency, eliminating credit risks to counterparties.

This is part of the efforts to create a market for professional CAESPs to efficiently conduct covering transactions. There is no restriction on an entity simply owning cryptocurrencies for its own investment purposes, or investing in cryptocurrencies for its own exchange purposes. The mining of cryptocurrencies is not regulated. Mining in itself does not fall under the definition of CAES.

It should be noted, however, that if the mining scheme is formulated as involving CISIs and includes the sale of equity interests in an investment fund, it will be subject to the relevant FIEA regulations. Under the Foreign Exchange and Foreign Trade Act of Japan, if a resident or non-resident has received a payment exceeding JPY30 million made from Japan to a foreign country or made from a foreign country to Japan, the resident or non-resident must report it to the Minister of Finance.

If a resident has made a payment exceeding JPY30 million to a non-resident either in Japan or in a foreign country, the same reporting requirement applies. But the tightened rules cast a pall over the sector, with a slew of the exchanges struggling to keep up with the regulatory standards. Please add japantimes. If this does not resolve the issue or you are unable to add the domains to your allowlist, please see this FAQ. In a time of both misinformation and too much information, quality journalism is more crucial than ever.

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