In October 2017, the FSA made an announcement on ICOs warning about the risks of ICOs including the high volatility of a token price and potential risk of fraud in order to protect investors. In January 2018, hackers broke into a Virtual Currency Exchange Service Provider called Coincheck Inc. and made off with nearly $500 million in digital tokens. In response to this incident, the FSA declared that the examination of Virtual Currency Exchange Service Provider registrations under the Payment Services Act would became stricter than before.
Japan currently has no clear regulation covering ICOs specifically. Depending on characteristics and features of a token and advantages of purchasing the token issued by an ICO, the ICO may be regulated by the Act on Payment Services (hereinafter referred to as "Payment Services Act") and the Financial Instruments and Exchange Act in Japan. In addition, the Civil Code (cancellation of contract by fraud, claim for damages, etc.), the Act on Prevention of Transfer of Criminal Proceeds (details will be mentioned later), the Consumer Contract Act (nullity of clauses that unilaterally impair the interests of consumers, etc.), and Act on Specified Commercial Transactions (restrictions on advertisement of mail order sales, etc.), etc. may also become an issue.
Depending on characteristics and features of a token and advantages of purchasing the token issued by an ICO, the ICO may be regulated by the Payment Services Act and the Financial Instruments and Exchange Act in Japan. According to a media report, in March 2018, the FSA released risk warnings based on the Payment Services Act for a foreign company that conducted an ICO without registering as a "Virtual Currency Exchange Service Providers". According to other media report, the FSA is considering amendment to the law that prohibits illegal ICO in order to protect investors. It should be noted that it is not so clear what kind of token issued by ICOs is regulated by the Payment Services Act and the Financial Instruments and Exchange Act. Therefore, we need to fully ascertain characteristics and features of the token and advantages of purchasing tokens issued by the ICO.
The ICO market in Japan is not so large. ICOs had been mainly conducted by overseas companies, and there was no case of large-scale financing through ICOs in Japan.
However, there are examples of ICOs with funding exceeding 100 billion yen in Japan:
- In 2017, a Virtual Currency Exchange Service Provider called Tech Bureau, Corp. raised about 109 billion yen through its ICO.
- In 2017, a Virtual Currency Exchange Service Provider called QUOINE Corporation raised about 124 billion yen through its ICO.
As a result of prohibition of ICOs in China and South Korea, the center of virtual currency transactions in Asia has shifted to Japan.