FSA

Japan’s FSA expects to allow certain stablecoins by June 2023

There is yet no opportunity to know whether US dollar-backed stablecoins like USDT or USDC will be allowed in Japan by June 2023, the FSA said.

Japan’s new regulations allowing investors to trade using stablecoins like Tether (USDT) are expected to be adopted no later than in June 2023, according to a local financial authority.

The Financial Services Agency (FSA) of Japan is working on lifting the ban on the domestic distribution of stablecoins, planning to allow certain stablecoins later this year.

“This does not mean that all foreign products of so-called ‘stablecoins’ will be allowed without any restriction,” a spokesperson for Japan’s FSA said in a statement to Cointelegraph.

FSA will only allow stablecoins that successfully pass individual checks ensuring that such cryptocurrencies are safe from the viewpoint of user protection, the FSA representative stated. Examples include foreign issuers in their countries being subject to equivalent regulations in Japan, with underlying assets being preserved appropriately, the spokesperson added.

The authority also stressed that there is no chance of knowing whether major stablecoins like Tether (USDT) or USD Coin (USDC) will be allowed. “FSA does not provide any opportunity to access such information before the decision is made,” the representative said.

Japan’s new stablecoin regulations are part of the proposed cabinet orders and cabinet office ordinances on the amendment to the Payment Services Act of 2022. Introduced in December 2022, the new rules aim to establish requirements for electronic payment instruments and develop the related registration procedures.

According to the official data, the FSA will accept public comments regarding the Payment Services Act changes until Jan. 31, 2023.

“It is scheduled to be promulgated and enforced through necessary procedures upon closure of the public comment, therefore, the exact date is not decided yet,” a FSA spokesperson said. FSA noted that the law enforcement deadline is set for early June.

Related: Japanese regulators want crypto treated like traditional banks

As previously reported, Japan’s parliament passed a bill to ban foreign stablecoins in June 2022, requiring stablecoin issuers to link such cryptocurrencies only to the Japanese yen or another legal tender.

The new legislation, which is expected to take effect in 2023, has apparently impacted many crypto firms as none of the 31 FSA-registered Japanese exchanges have since offered stablecoin operations. Some major crypto exchanges, including Coinbase and Kraken, have recently pulled operations in Japan, citing a weak crypto market.

Japan recommends against algorithmic backing in stablecoins

The potential legal status of the Japanese Financial Service Agency’s recommendation is not clear as the current legislation is silent on algorithmic stablecoins.

After passing its landmark legislation on stablecoins in June, Japanese regulators are considering complementing it by restricting the algorithmic backing of stablecoins. The intention comes as a recommendation from the Financial Service Agency (FSA) and was repeated by the country’s Vice Minister for International Affairs, Tomoko Amaya. 

During his speech on crypto assets at a roundtable hosted by the Official Monetary and Financial Institutions Forum (OMFIF), Amaya laid out Japan’s regulatory framework, emphasizing the factors of financial stability, user protection, and anti-money laundering/ combating the financing of terrorism (AML/CFT). The speech was originally held in November, but the FSA published the full document on Dec 7.

The 29-paged presentation systemizes the Japanese approach to crypto regulation, formed by several major legislations — the Banking Act, the Payment Services Act and the Financial Instruments and Exchange Act. One familiar with the Japanese regulatory environment couldn’t find anything new at this point, although the accent on differentiating between the “crypto assets” and “digital-money type stablecoins” gives a distinct perspective on the local regulators’ approach to the latter.

Related: Bank of Japan to trial digital yen with three megabanks

Amaya’s speech also doesn’t specify any particular dates or headlines for future legislation. However, at the end of the document, in the “Way Forward” section, the Vice Minister cites the FSA recommendations, reportedly made in October. As the quote goes:

“The proposed review states that ‘global stablecoins must not use algorithms in stabilizing their value’ and strengthens the ensuring of redemption rights.” 

This recommendation would probably be taken into consideration by lawmakers in the future, as the current stablecoins’ regulation, which was passed by Parliament in June and will become law in June 2023, doesn’t cover algorithmic stablecoins. The bill itself came in the aftermath of a massive decline in cryptocurrency markets fueled by the Terra tokens collapse, with the algorithmic stablecoin Terra USD (UST) losing its 1:1 value to the U.S. dollar in early May.

Japan’s financial regulator requests FTX Japan halt operations

Under the orders, FTX Japan will be required to suspend OTC derivatives transactions and related margins as well as new deposits from Nov. 10 to Dec. 9 unless the FSA steps in.

The Financial Services Agency, or FSA, of Japan has requested FTX Japan suspend business orders, citing the policies of FTX Trading Limited.

In a Nov. 10 announcement, the FSA said it had taken administrative actions against FTX Japan following FTX Trading Limited’s suspension of withdrawals “without explaining the reasons clearly to investors.” The financial regulator said it had issued suspension orders and business improvement orders in accordance with Japan’s Payment Services Act and Financial Instruments and Exchange Act.

“There have been reports that FTX Trading Limited is facing credit uncertainties,” said the FSA. “It is necessary to take all possible measures to prevent a situation in which the interests of creditors and investors are harmed by the outflow to affiliated companies of the company. Therefore, this situation of our company is not recognized as having the necessary system in place to properly carry out [its financial obligations].”

Under the orders, FTX Japan will be required to suspend OTC derivatives transactions and related margins as well as new deposits from users from Nov. 10 to Dec. 9 unless the FSA steps in. The financial regulator also ordered the exchange to hold its asset domestically over the same timeframe, properly reporting liabilities on its balance sheet.

FSA’s business improvement order requires FTX Japan to submit a plan by Nov. 16 which includes how it intends to protect investors and provide transparency on the ongoing situation with FTX:

“Until the implementation of the business improvement plan is completed, monthly progress and implementation status shall be reported in writing by the 10th of the following month.”

Related: Japan’s crypto self-regulation ‘experiment’ not working

Formerly the Quoine Corporation, FTX Japan was launched in June by FTX to service Japanese crypto users following the acquisition of the Liquid exchange in February. FTX CEO Sam Bankman-Fried, who recently apologized for not providing transparency around the “liquidity crunch” the exchange was facing, also served as the Interim CEO of FTX Japan at launch.

Though Bankman-Fried said United States-based exchange FTX US — a separate business entity from FTX — “was not financially impacted” by the problems facing the major exchange, it’s unclear how FTX’s difficulties may impact FTX Japan’s business and operations.

Japan’s financial regulator requests FTX Japan halt operations

Under the orders, FTX Japan will be required to suspend OTC derivatives transactions and related margins as well as new deposits from Nov. 10 to Dec. 9 unless the FSA steps in.

The Financial Services Agency, or FSA, of Japan has requested FTX Japan suspend business orders, citing the policies of FTX Trading Limited.

In a Nov. 10 announcement, the FSA said it had taken administrative actions against FTX Japan following FTX Trading Limited’s suspension of withdrawals “without explaining the reasons clearly to investors.” The financial regulator said it had issued suspension orders and business improvement orders in accordance with Japan’s Payment Services Act and Financial Instruments and Exchange Act.

“There have been reports that FTX Trading Limited is facing credit uncertainties,” said the FSA. “It is necessary to take all possible measures to prevent a situation in which the interests of creditors and investors are harmed by the outflow to affiliated companies of the company. Therefore, this situation of our company is not recognized as having the necessary system in place to properly carry out [its financial obligations].”

Under the orders, FTX Japan will be required to suspend over-the-counter derivatives transactions and related margins as well as new deposits from users from Nov. 10 to Dec. 9 unless the FSA steps in. The financial regulator also ordered the exchange to hold its asset domestically over the same timeframe, properly reporting liabilities on its balance sheet.

FSA’s business improvement order requires FTX Japan to submit a plan by Nov. 16, which includes how it intends to protect investors and provide transparency on the ongoing situation with FTX:

“Until the implementation of the business improvement plan is completed, monthly progress and implementation status shall be reported in writing by the 10th of the following month.”

Related: Japan’s crypto self-regulation ‘experiment’ not working

Formerly the Quoine Corporation, FTX Japan was launched in June by FTX to service Japanese crypto users following the acquisition of the Liquid exchange in February. FTX CEO Sam Bankman-Fried, who recently apologized for not providing transparency around the “liquidity crunch” the exchange was facing, also served as the interim CEO of FTX Japan at launch.

Though Bankman-Fried said United States-based exchange, FTX US — a separate business entity from FTX — “was not financially impacted” by the problems facing the major exchange, it’s unclear how FTX’s difficulties may impact FTX Japan’s business and operations.

Japan’s crypto self-regulation ‘experiment’ not working

Self-reg entity JVCEA has reportedly received stern warnings to get its act together, as Japan’s Financial Services Agency pushes for the organization to speed up its AML regulation rollout.

Japan’s self-regulation “experiment” for the crypto industry is reportedly not working as well as intended, according to local government and industry experts.

Since 2018, the Japan Virtual Currency Exchange Association (JVCEA), a self-regulation entity, has been tasked with creating guidelines for the country’s crypto industry, with arguments at the time that the entity could be better placed to cope with crypto regulation than a government body.

However, speaking with the Financial Times (FT) on July 18, an unnamed source “close to both industry and government” said that the current model of crypto regulation is faltering:

“When Japan decided to experiment with self-regulation of the cryptocurrency industry, many people around the world said it would not work. Unfortunately, right now it looks as though they may be correct.”

The organization was forged in response to the $530 million hack on the Coincheck exchange in 2018. It is recognized by Japan’s Financial Services Agency (FSA) and has the power to pass and enforce regulatory frameworks for local crypto exchanges.

Its members include a long list of top local crypto names such as Coincheck, BitFlyer and Rakuten Wallet Co, along with the Japanese subsidiaries of FTX and Coinbase.

Over recent months, the JVCEA has reportedly copped a fair amount of flack from the FSA over its slowness in getting regulation off the ground.

According to the FT, the FSA is said to have highlighted key issues with the JVCEA, including its delays in introducing anti-money laundering (AML) regulation and lack of communication between directors, member operators and its secretariat — signaling poor management.

The report also noted that the FSA had already once issued an “extremely stern warning” to the JVCEA in December to get its operations in order and that it was not “clear what kind of deliberations the body was having, what the decision-making process was, why the situation was the way it was, and what the responsibility of the board members was”.

In June, Prime Minister Fumio Kishida also called on the entity to speed up its listing approval process for digital assets on local crypto exchanges but still be “mindful of the need to protect users.”

Another unnamed source close to the JVCEA suggested that the organization is lacking office staff with a genuine knowledge of, or interest in crypto.

According to them, the office is primarily composed of retired bankers, brokers, and government workers, and lacks representatives from the JVCEA’s list of crypto member companies.

“That is why no one there really understands blockchain and cryptocurrencies. The whole mess shows it is not a simple problem of governance. The FSA is very angry about the whole management.”

The JVCEA says it is currently working to make improvements and address the organization’s current issues. However, Meiji University professor and JVCEA board member Masao Yanaga also highlighted that the organization lacks the resources to move quickly.

Yanaga also suggested that AML regulation has been difficult to implement as there is an absence of international agreements concerning the sharing of customer data between crypto exchanges.

“The operators of the exchanges worry that even if we create these rules, they won’t be able to implement them,” he said.

Related: Japan passes bill to limit stablecoin issuance to banks and trust companies

One area that the JVCEA has made slight improvements in this year is its digital asset listing criteria. The entity is tasked with assessing tokens that local companies intend to list however, it has generally taken the JVCEA around six months or more to conduct its screening process.

In March Cointelegraph reported the JVCEA watered down some of its requirements by making a “green list” of 19 assets that no longer require screening, including Bitcoin (BTC), Ether (ETH) and Ripple (XRP). 

Japan’s crypto self-regulation ‘experiment’ not working

Self-reg entity JVCEA has reportedly received stern warnings to get its act together, as Japan’s Financial Services Agency pushes for the organization to speed up its AML regulation rollout.

Japan’s self-regulation “experiment” for the crypto industry is reportedly not working as well as intended, according to local government and industry experts.

Since 2018, the Japan Virtual Currency Exchange Association (JVCEA), a self-regulation entity, has been tasked with creating guidelines for the country’s crypto industry, with arguments at the time that the entity could be better placed to cope with crypto regulation than a government body.

However, speaking with the Financial Times (FT) on Monday, an unnamed source “close to both industry and government” said that the current model of crypto regulation is faltering:

“When Japan decided to experiment with self-regulation of the cryptocurrency industry, many people around the world said it would not work. Unfortunately, right now it looks as though they may be correct.”

The organization was formed in response to the $530 million hack on the Coincheck exchange in 2018. It is recognized by Japan’s Financial Services Agency (FSA) and has the power to pass and enforce regulatory frameworks for local crypto exchanges.

Its members include a long list of top local crypto names such as Coincheck, BitFlyer and Rakuten Wallet Co, along with the Japanese subsidiaries of FTX and Coinbase.

Over recent months, the JVCEA has reportedly copped a fair amount of flack from the FSA over its slowness in getting regulation off the ground.

According to the FT, the FSA is said to have highlighted key issues with the JVCEA, including its delays in introducing Anti-Money Laundering (AML) regulation and lack of communication between directors, member operators and its secretariat — signaling poor management.

The report also noted that the FSA had already once issued an “extremely stern warning” to the JVCEA in December to get its operations in order and that it was not “clear what kind of deliberations the body was having, what the decision-making process was, why the situation was the way it was, and what the responsibility of the board members was.”

In June, Prime Minister Fumio Kishida also called on the entity to speed up its listing approval process for digital assets on local crypto exchanges but still be “mindful of the need to protect users.”

Another unnamed source close to the JVCEA suggested that the organization is lacking office staff with a genuine knowledge of, or interest in crypto.

According to them, the office is primarily composed of retired bankers, brokers and government workers, and lacks representatives from the JVCEA’s list of crypto member companies:

“That is why no one there really understands blockchain and cryptocurrencies. The whole mess shows it is not a simple problem of governance. The FSA is very angry about the whole management.”

The JVCEA says it is currently working to make improvements and address the organization’s current issues. However, Meiji University professor and JVCEA board member Masao Yanaga also highlighted that the organization lacks the resources to move quickly.

Yanaga also suggested that AML regulation has been difficult to implement as there is an absence of international agreements concerning the sharing of customer data between crypto exchanges.

“The operators of the exchanges worry that even if we create these rules, they won’t be able to implement them,” he said.

Related: Japan passes bill to limit stablecoin issuance to banks and trust companies

One area that the JVCEA has made slight improvements in this year is its digital asset listing criteria. The entity is tasked with assessing tokens that local companies intend to list. However, it has generally taken the JVCEA around six months or more to conduct its screening process.

In March, Cointelegraph reported that the JVCEA watered down some of its requirements by making a “green list” of 19 assets that no longer require screening, including Bitcoin (BTC), Ether (ETH) and Ripple (XRP).