New laws for regulating cryptocurrencies in Japan will come into effect next month.
The Payment Services Act (PSA) and Financial Instruments and Exchange Act (FIEA), two of the laws passed by the Japanese House of Representatives last year to regulate crypto, are due to take effect from April. However, with unexpected delays, no official enforcement date had been set until last week.
The April 3 edition of an official government newsletter announced that the revised versions of the PSA and FIEA would be maintained in Japan from May 1.
Since there are no official laws in Japan to regulate crypto, changing existing regulations is currently the only way to give digital assets legal status in the Asian nation. As such, changes in the PSA range from changing basic terminology – “crypto assets” rather than “virtual currency” – to tighter restrictions for crypto custodians.
In addition, crypto exchanges operating in Japan from May 1 will have to manage users’ money separately from their own cash flows. This means that we need to find an external operator to hold their customers’ money, using ‘reliable methods’ such as cold wallets.
If users insist on using hot wallets, exchanges should have ‘the same type and amounts of crypto assets’ as their users to properly reimburse them in the event of theft – this may have been added in response to the Mt. Gox hack that resulted in the loss of 850,000 Bitcoin.
FIEA revisions include the concept of electronically registered transferable rights (ERTRs) to define that initial coin offerings (ICOs) and security token offerings (STOs) would be regulated by law. ERTRs refer to tokens issued in the expectation of profit – i.e. security tokens. In addition, crypto derivatives in Japan are largely unregulated, despite accounting for 80% of existing transactions. From May 1, transactions involving crypto asset derivatives are regulated under the FIEA.
In general, FIEA prohibits anyone in Japan from participating in activities such as spreading rumors or using fraudulent means to sell, buy or enter into crypto assets or derivatives transactions.
A recent report from a Tokyo-based law firm concluded that regulatory measures such as the PSA and FIEA can help set Japan apart as a safe haven for crypto, rather than the wild west of finance it is sometimes known for.
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