To date, virtual currencies and related service providers remain unregulated in Japan. However, on March 4, 2016, the Cabinet of Japan approved an amendment bill to the Payment Services Act of Japan and submitted it to the Diet (“Amendment Bill”).
Most importantly, the Amendment Bill aims to bring the industry under the supervision of the Financial Services Agency of Japan (“FSA”) and introduce new registration requirements for virtual currencies exchanges, including those based outside of Japan that provide services to customers in Japan. Exchanges based outside of Japan may be registered as a “Foreign Exchange” if they are registered or licensed in their home jurisdiction; however, they must have an office in Japan and designate a “representative of Japan,” the failure of which would result in disqualification.
In addition, exchanges would be subject to various obligations such as recordkeeping, annual reporting and certain anti-money laundering compliance.
It is expected that the Amendment Bill will pass the Diet during the current 190th Diet session, currently scheduled to end on June 1. Subsequently, the FSA will promulgate the rules to implement changes under the Amendment Bill upon public consultation.
For all businesses involved in virtual currencies, regardless of their geographical location, this new regulatory landscape, once adopted, means that they must consider whether they are subject to the registration requirements and various other obligations under the Amended Act. In particular, those businesses based outside of Japan providing services should consider introducing a review system in their policies and procedures, primarily through identifying customers’ residency, that allows them to determine whether they would be subject to Japanese regulations. Those businesses that service customers in Japan should expect and prepare resources to complete the registration and create compliance infrastructure within the organization.