Japanese Government Green-lights New Crypto, STO Regulations

After a slight delay due in part to the coronavirus outbreak, the Japanese government has green-lighted two new legal crypto exchange-specific amendments to existing financial acts, paving the way for new banking regulations and cold wallet requirements. The new laws will also potentially pave the way for the launch of Japan’s security token offerings (STOs) industry.

The amendments will take effect on May 1, per official government records.

The legal changes pertain to the Payment Services Act and the Financial Instruments and Exchange Act, and were first approved by the parliament’s lower house, the House of Representatives, last year at the behest of the regulatory Financial Services Agency (FSA).

The FSA had hoped to have the legal amendments completed earlier this year, but delays – caused partly by the coronavirus outbreak and complications pertaining to the delay of the Olympic Games – have sidetracked the government in recent weeks.

Here are a few of the highlights from this new package of new regulations:

1. ICOs and STOs. Legal definitions of initial coin offerings (ICOs) and STOs are spelled out. This will be of particular interest to the country’s securities giants, who have been keen on co-launching a joint STO exchange platform – and have been waiting for the regulatory green light before pushing ahead with a rollout.
2. Fake news and scams. Spreading rumors or making use of fraudulent methods to buy or sell cryptoassets or derivatives, or influence market prices, is criminalized, with harsher penalties for convicted offenders.
3. Derivatives. Cryptocurrency asset derivatives transactions will fall under the FSA’s regulatory remit.
4. Terminology. Tokens will be legally known as “cryptoassets,” rather than cryptocurrencies (or the commonly used Japanse term 仮想通貨, which translates as “virtual currencies”).
5. Banking and cold wallet provisions. Crypto exchanges will be legally required to keep their customers’ funds and crypto holdings separately from their own tokens and fiat holdings. Any customer money or tokens kept in hot wallets must be offset by the exchange’s own funds, kept safely offline or in cold wallets – allowing for easy and immediate reimbursements in the case of a hack.