Japan’s cryptoasset regulatory reform

On 1 May 2020, amendments to Japanese legislation came into force to enhance the country’s crypto regulatory framework. The pieces of legislation affected are the Financial Instruments and Exchange Act (FIEA), the Payment Services Act (PSA), and the Act on Sales of Financial Instruments (ASFI).

All entities servicing residents in Japan, whether incorporated in Japan or elsewhere, are impacted by the amendments. The local and international entities impacted include; virtual asset service providers (VASPs), VASPs conducting derivative trading and Security Token Offerings, wallet providers for virtual assets, and Financial Instruments Business Operators.

The main impacts of the changes include:

-             Updated terminology from virtual currencies to cryptoassets;

-             Requirements for custodial services providers (registration, segregation of funds, online and offline storage);

-             Minimum standards for due diligence;

-             Derivative trading, including defined limits;

-             Introduction of Electronically Recorded Transfer Rights (ERTRs), and;

-             Deterrents to crypto-related unfair acts (speculation, rumours, false information).

According to guidance issued by the Japan Financial Services Agency (JFSA), firms established outside Japan that offer services involving virtual assets to Japanese customers must be registered in Japan.

Companies established outside of Japan are required to identify, through know your customer (KYC) and due diligence (DD) processes, whether a customer is a resident in Japan. If the company wishes to service residents of Japan, it must first register with the JFSA.

Cryptoasset Exchange Service Providers that were registered before 1 May 2020 wishing to continue to offer cryptoasset derivative trading or carrying out STOs must apply to be registered as Financial Instrument Businesses under the FIEA by 1 November 2020. Entities that apply before 1 November 2020 can continue operating for up to six further months (until 1 May 2021) while their registration is processed.

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For further information please contact XReg Partner Nicky Gomez at nicky@xreg.consulting or +44 207 039 3426 or our International Relations Manager, Ana James, at ana@xreg.consulting or +44 207 959 2608.

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