Japan’s House of Representatives has passed a new cryptocurrency bill with additional requests for the government to incorporate into law.
Japan’s New Crypto Bill
A new cryptocurrency bill officially passed Japan’s House of Representatives, the lower house of the National Diet, on May 21. It was subsequently accepted by the House of Councillors, the upper house of the Diet, the following day. According to the Japanese government’s website, there were many opinions on the bill.
A spokesperson for Japan’s top financial regulator, the Financial Services Agency (FSA), told: “The passing of the bill depends on the deliberation process in the Diet.”
The bill, officially entitled “A draft bill to amend some of the fund settlement laws, etc., in response to the diversification of financial transactions accompanying the advancement of information and communication technology,” was prepared by the FSA. It was submitted by the cabinet and accepted by the House of Representatives on March 15.
The bill seeks to amend two key laws that apply to crypto assets: the Act on Fund Settlement and the Financial Instruments and Exchange Act. The FSA revealed to reporters at a briefing session in March that the bill is expected to be enacted and finalized in the Diet by June 2020.
The revised bill passed by the House of Representatives was accompanied by a resolution of 15 requests which “require the government to clarify regulatory targets, deploy appropriate personnel, implement appropriate regulations in line with the international standards, consider appropriate taxation methods, etc.,” Impress publication reported.
The FSA clarified:
“The additional resolution (15 proposed items) is items which we should take into consideration before introducing the bill, and we should take appropriate responses to it at the time when the bill comes into effect.”
Among the items the House of Representatives asked the FSA to consider is to “Establish an effective inspection and supervision system from the viewpoint of user protection, etc. based on the current situation of crypto assets and [initial coin offering] ICO transactions in recent years.”
Several other items require the regulator to examine actual situations and take measures based on results including constructing a system that is feasible and consistent with the regulatory trends of the G20 and international standards such as anti-money laundering measures. In addition to making efforts to fully cooperate with self-regulatory organizations, one of the 15 items requests the FSA to:
“Review the transfer of crypto assets and the right to transfer electronic records, taxation of income tax, etc. on income related to transactions using crypto assets, and take necessary measures based on the results.”
Moreover, the FSA was asked to “Take care not to unduly limit … the development and application of these technologies” when developing and deploying regulations including carrying out inspections and imposing measures. Crypto assets and their underlying technologies “may contribute to the advancement of Japan’s industry,” the resolution details.
Policies regarding ICOs were also discussed, particularly the need for the government to formulate guidelines and take appropriate measures while considering international discussions. Given the diversity of ICO participants and types of issues, the agency was asked to avoid “excessive regulation, and respond appropriately as necessary.”
The FSA also explained how the amendments will affect crypto exchange operators. Currently, there are 19 approved crypto exchanges in Japan, and over 140 companies have expressed interest in entering the country’s crypto space.
The regulator said:
“The registered crypto-assets broker dealers need neither re-register nor be requalified. Needless to say, however, they are required to develop the system to comply with the obligation newly introduced by this revised Act. We are going to keep on monitoring the situation for maintaining their system on a continual basis.”
Key Areas Addressed by the Bill
The bill incorporates many suggestions from the study group meetings conducted by the FSA. Impress publication summarized, “In addition to changing the name virtual currency to ‘crypto assets,’ the amendments also require that crypto assets be managed using a cold wallet, etc.” Further, the bill grants ICOs “the right to receive revenue distribution.”
Since there have been some major cases in Japan where hot wallets were hacked and cryptocurrencies held in them stolen, the bill requires customers’ crypto assets to be stored in reliable cold wallets. For crypto assets held in hot wallets, equivalent amounts must be stored separately, backed by other payment sources.
In response to excessive advertising and solicitation by several crypto exchanges, the regulator will “establish advertising and solicitation restrictions such as the prohibition of false labeling and hype, and the prohibition of advertisements and solicitations that encourage speculation,” the publication described. It further notes:
“Regarding crypto assets with high anonymity … change of crypto assets handled by virtual currency exchange operators shall be notified [to the FSA] in advance and checked for problems.”
In interview , the FSA emphasized that all approved crypto exchanges have to declare what cryptocurrencies they will handle at the time of their application. “When a crypto-asset broker-dealer wants to add more crypto-assets or to change old ones into new ones to be traded on its platform, it is required to notify that in advance,” the agency confirmed.
The bill also stresses the importance of collaboration with self-regulatory organizations. So far, only one has been approved. Margin trading, which accounts for about 80% of domestic crypto asset trades in Japan, will be regulated under the Financial Instruments and Exchange Act. Sales and solicitation restrictions will be in line with foreign exchange margin transactions. Furthermore, the law prohibits unfair acts, including price manipulation, and stipulates that a provision will be put in place to give priority to the return of customers’ crypto assets held by exchanges.