Kavan Choksi Shares Thoughts About Crypto Regulations in Japan

Japan currently enjoys one of the most progressive crypto regulatory climates on the planet, says Kavan Choksi. Consequently, Japan also represents the world's largest Bitcoin market, and recent discussions involving a new yen-backed cryptocurrency have further increased the buzz around the Japanese crypto markets. However, recent high-profile hacks threaten to disrupt this idyllic crypto haven.

Recent amendments to the PSA and the Financial Instruments and Exchange Act (FIEA) introduce "crypto-assets" rather than virtual currency and impose stricter controls on managing users' virtual money. In addition, they tighten regulations on crypto derivatives trading. According to the new rules, crypto custody service providers (those not involved in the selling or buying of crypto assets) are under the PSA, while the FIEA will govern cryptocurrency derivatives businesses.

Regulations for Cryptocurrency Exchanges

Japanese businesses with a competent local Financial Bureau have permission to operate as cryptocurrency exchanges under the PSA. However, in keeping with the country's progressive stance, foreign cryptocurrency exchanges have the permission to register in countries where they can demonstrate an equivalent registration standard in their host country.

While exchanges are legal in Japan, crypto regulations have emerged as a pressing national concern. Following a string of high-profile hacks, including the infamous Coincheck heist of $530 million in virtual currency, new considerations of how best to regulate crypto markets have emerged. As a result, Japan's Financial Services Agency has increased its regulation of trading and exchanges.

Regulations for Future Cryptocurrency

Following discussions between exchanges and the FSA, there was an agreement to establish two self-regulatory bodies – the Japanese Virtual Currency Exchange Association (JVCEA) and the Japan STO Association. Japan is the first to take this self-regulation step. All exchanges are part of the JVCEA, and five major Japanese financial institutions joined forces to form the Japan STO Association. The JVCEA and the STO Association work together to provide advice to unlicensed exchanges and promote regulatory compliance.