Name
Global FinTech Guide
Country _ Name
Japan
SectionTitle
DLT and cryptocurrencies
Body
FinTechs belonging to this category offer financial services using crypto currencies. This category also includes FinTechs utilising blockchain and distributed ledger technologies (DLT) upon which Bitcoin and Ethereum are based, among others. FinTechs develop and do research in this field in order to create new services – e.g. crypto currency exchange markets, wallet providers, NFTs-related services, new payment services, "smart contracts" or new clearing and settling services.

Introduction

Attitude of the country towards financial services using crypto currencies

Cryptocurrencies fall under the definition of "cryptoasset" (Payment Services Act, Art. 2, para. 14) in many cases. The Payment Services Act establishes regulations for Cryptoasset Exchange Service Providers, and the Financial Services Agency ("FSA)” publishes a guideline relating to these regulations.
The FSA is currently considering amendments to the Financial Instruments and Exchange Act (FIEA) in order to classify cryptoassets as financial instruments and to make them subject to insider trading regulations and disclosure requirements for issuers under the FIEA.

There are currently no regulatory laws on NFTs which do not fall under the definition of cryptoassets, securities, prepaid payment instruments, funds transfer transactions, or points. However, the "Priority Plan for the Realization of a Digital Society, etc.", approved by the Cabinet on June 7, 2022, describes "the environment improvement for the promotion of Web 3.0, such as the use of NFT (Non-Fungible Token) based on blockchain technology, etc.”. Based on this plan, the Web 3.0 Study Group was established by the Digital Agency in the same year and is working on the development of Web 3.0 regulations.


Legal affairs

Obligations and requirements to provide financial services using crypto currencies described above

With respect to cryptoassets, registration for a Cryptoasset Exchange Services is required when carrying out any of the following acts in the course of trade (Payment Services Act, Art. 63-2).
  • purchase and sale of a cryptoasset or exchange with another cryptoasset;
  • intermediary, brokerage, or agency services for acts set forth in the preceding item;
  • management of users' money, carried out by persons in connection with acts set forth in the preceding two items; and
  • management of cryptoassets on behalf of another person.
To register as a Cryptoasset Exchange Service, an operator must be a stock company (kabushiki kaisha
) or a Foreign Cryptoasset Exchange Service Provider, have capital not less than JPY 10 milllion, and the operator’s net assets must not be a negative figure. For a Cryptoasset Exchange Service Provider that manages cryptoassets, the net asset value must be at least the amount calculated by converting the quantity of Performance-Guarantee Cryptoassets into Japanese yen. “Performance-Guarantee Cryptoassets” means cryptoassets held by a Cryptoasset Exchange Service Provider as its own assets, that are the same type and volume as the cryptoassets of it users, which the Cryptoasset Exchange Service Provider manages in a "hot" wallet. A Cryptoasset Exchange Service Provider must hold Performance-Guarantee Cryptoassets and manage them separately from other cryptoassets.
Under the Payment Services Act, a Cryptoasset Exchange Service Provider is under the following obligations to protect its users:

  • Preparation and maintenance of account books
  • Provision of information to users
  • Security management of its system
  • Separate management of money or cryptocurrency deposited by the users and the assets of the Crypto Currency Exchange Service Provider itself
  • Compliance with regulations regarding advertising and solicitation
  • Certain other prohibited acts
As a Cryptoasset Exchange Service Provider is designated as a Specified Business Operator under the Act on Prevention of Transfer of Criminal Proceeds, it is also under the following obligations:

  • Identity verification is required when conducting Specified Transactions under the Act on Prevention of Transfer of Criminal Proceeds with customers, and verification records must be created and stored;
  • When concluding an agreement with a Cryptoasset Exchange Service Provider located in a foreign country for a continuous or repeated transfer of cryptoassets, certain matters must be confirmed; and
  • The information of the sender and recipient must be given to the recipient's Cryptoasset Exchange Service Provider at the time of the transfer of cryptoassets (Travel Rule).
In addition, under the Foreign Exchange and Foreign Trade Act, a Cryptoasset Exchange Service Provider is under the following obligations:

  • When conducting certain transactions related to cryptoassets, the identity of customers must be verified, and post-event reporting related to capital transactions must be conducted;
  • When transferring cryptoassets for customer payments and related transactions, it must be confirmed that these payments do not fall under the category of payments for which an obligation to obtain permission is imposed; and
  • A system for the proper implementation of asset freezing measures must be in place.
In addition, the provisions for prohibited acts such as unfair trading in the Financial Instruments and Exchange Act must be complied with for a Cryptoasset Exchange Service Provider.

Additional comments regarding the legal situation for financial services using crypto currencies or what FinTech’s must be aware of in this business area
A Cryptoasset Exchange Service Provider must comply with self-regulatory rules issued by the Japan Virtual and Crypto assets Exchange Association ("JVCEA"). Regulations under the self-regulatory rules include, for example, the requirement of Cryptoasset Exchange Service Providers to provide information in connection with the issuance of regulated cryptographic assets, prohibition of loss compensation, prohibition of offering special benefits, false accounting, etc., and prohibition of unauthorized trading. In addition, the JVCEA Articles of Incorporation state that the JVCEA may take disciplinary action against members who violate the self-regulatory rules (Article 18, Paragraph 1 of the JVCEA Articles of Incorporation).


Economic conditions

Market size for financial services using crypto currencies and biggest companies in this business area

Margin transactions have continued to decline significantly since 2021 due to leverage restrictions imposed by revised laws.

According to CoinMarketCap, the top five Cryptoasset Exchange Service Providers by transaction volume in Japan are bitFlyer, Coincheck, bitbank, OKCoinJapan, and BTCBOX.

Additional comments regarding the economic situation for financial services using crypto currencies or what FinTech’s must be aware of in this business area

N/A



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