Japan’s New Crypto Regulation – 2019 Amendments to Payment Services Act and Financial Instruments and Exchange Act of Japan
By Tsuguhito Omagari and Yuki Sako
Japan will fundamentally change its crypto asset regulations effective in spring of 2020.
In May, 2019, the National Diet, the Japanese national legislature, passed an amendment bill to the Payment Services Act (the “PSA”) and the Financial Instruments and Exchange Act (the “FIEA”), which was promulgated on June 7, 2019 (the “2019 Amendment”). The 2019 Amendment will become effective within one year from promulgation, following further rulemaking by the Japan Financial Services Agency (the “JFSA”) to implement the 2019 Amendment, which is anticipated sometime soon and includes public comment process.
Key Takeaways of the 2019 Amendment
The 2019 Amendment, coming into force within one year of the promulgation, will bring certain significant and fundamental changes to how crypto assets are regulated in Japan. Key takeaways are:
- Crypto asset margin trading and other crypto asset derivative transactions will become subject to Japanese regulations on derivative transactions generally. Broker-dealers and exchanges will likely need to revisit and update their registration status and policies and procedures. While it may be possible to rely on a limited grandfathering provision for 6 months after the effective date, a notification must be submitted to a relevant local Finance Bureau within two weeks after the effective date of the 2019 Amendment.
- Certain crypto assets distributed through distributed ledger technologies (such as blockchain) will be expressly regulated as Type I securities. Consequently, solicitation and offering of such crypto assets, including Initial Coin Offerings, to Japanese investors will require careful review and structuring to avoid any regulatory pitfalls.
- Crypto asset-related custodial activities will be subject to licensing.
- Crypto asset trading activities will be subject to various prohibitions on unfair trading and practices.
- A detailed rulemaking process will follow and involve opportunities to submit comments during the public consultation process.
For more details on the 2019 Amendment and our analysis, please see our client alert.