Put in simple terms, cryptocurrencies are money* that is stored online and be used for payments both over the internet and, recently, in some shops. Unlike banks, which use centralized ledgers to track transactions, cryptocurrencies rely on something called blockchain technology – a digital ledger shared among peers. Said to be more secure than traditional bank ledgers due to the nonexistence of a central ledger which can be hacked or otherwise damaged, this blockchain technology was originally devised for the now infamous cryptocurrency Bitcoin. *N.B. While cryptocurrencies are popularly referred to as a type of money, they are not necessarily legally defined as such. In Japan, they are defined as currency assets under the Payment Services Act.
Regulation of the CryptoCurrency Exchange IndustryAs cryptocurrencies take us into new territories, new concerns arise as to the implications of new digital economy in which they exist. Recent years, for example, have seen a rise in concerns over the need to protect the rights of users of cryptocurrencies and to prevent cryptocurrencies from being used to fund terrorist and other dangerous organizations. In Japan, official regulation of cryptocurrencies began in April 2017 with the introduction of a requirement for those handling cryptocurrencies to register with the Financial Services Authority (FSA). This system came with a period of leeway in which those already carrying out business involving the exchange of cryptocurrencies could continue business without hindrance as long as they registered within the 6 months from April 2017. In addition to registering with the FSA, cryptocurrency exchange businesses must also carry out other obligatory procedures such as submitting regular business reports, performing audits regarding the separation of management for money and cryptocurrency and more. ※N.B. Those engaging in the trade of cryptocurrency as individuals not seeking to earn profit will most likely not be covered by these new regulations, but please contact us if you are unsure about your particular case.
What exactly is being regulated?In short, the following areas of business are being regulated. ① Purchase and sale of cryptocurrencies. ② Exchange between cryptocurrencies. ③ Acting as an intermediary, agent or proxy for any operations involving ① or ②. ④ Management of money or cryptocurrencies on the behalf of those engaging in ① or ② (e.g. using a cryptocurrency wallet). Beyond the above 4 areas of business, there are currently no other specific regulations concerning the cryptocurrency exchange industry. Creating a new cryptocurrency, for example, can be done entirely at the will of individuals, corporations or other groups. It is only when this currency is sold that regulations start to apply.
Basic Registration RequirementsPut simply, the basic registration requirements for those wishing to engage in Japan’s cryptocurrency industry are as follows. N.B. These are general requirements and do not necessarily reflect the reality of what may be needed for your specific application.
- The registration process will check your handling of information (e.g. compliance management system, handling of client data, systems for tracking transactions).
- You will need to demonstrate that you have an appropriate team established, including people such as a manager, compliance manager, internal auditor and system manager.
- You will need to show that the service you are handling qualifies as related to cryptocurrency.
- You must have ¥10m in capital funds.
- Other areas of your finances (e.g. net assets) will also be examined.
- You must be able to show that your management of money and cryptocurrency are carried out separately.
- You must have an appropriate office space secured from which to carry out your business.
For any further questions please do not hesitate to contact us!