Though the definition is complicated, in short, a cryptocurrency that is usable as a payment method to an unspecified person and not denominated in a fiat currency falls under the definition of Crypto Asset. For example, prepaid e-money cards usually fall under Currency Denominated Assets. If a coin issued by a bank is guaranteed to have a certain value of a fiat currency, such a coin will likely be treated as a Currency Denominated Asset rather than a Crypto Asset. The applicant must be i a stock company kabushiki-kaisha , or ii a Foreign Exchange Provider which has an office s and representative in Japan.
Accordingly, any foreign entity wishing to register as an Exchange Provider must establish either a subsidiary in the form of kabushiki-kaisha or a branch in Japan.
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In addition, the applicant must have: a a sufficient financial basis minimum capital amount of JPY10 million and positive minimum net assets ; b a satisfactory organisational structure and certain systems to conduct the Exchange Service appropriately and properly; and c certain systems to ensure compliance with relevant laws and regulations. During the registration process, the FSA will request for applicants to complete a checklist consisting of more than questions, in order to confirm that the applicants have established systems to properly and securely perform the Exchange Service.
In addition, the FSA will separately prepare a detailed progress chart to confirm the checking process. An Exchange Provider must: i take measures necessary to ensure safe management of information; ii provide information to users such as the content of transactions, an outline of each Crypto Asset handled by the provider, fees, the amount of cash or Crypto Assets that the provider has received from the user, the date of receipt, transaction records, etc. The PSA Revisions propose the following changes to the current regulatory system governing Exchange Providers in order to enhance the protection of users and to clarify the rules relating to Exchange Providers:.
The relevant Cabinet Office Ordinance requires an Exchange Provider to manage the Crypto Assets of users other than Crypto Assets required for the smooth performance of Exchange Services through highly reliable mechanisms, such as cold wallets. There are various types of tokens issued by way of ICO, and Japanese regulations applicable to ICOs vary according to the respective schemes.
In accordance with the prevalent current practice, i if the tokens issued via ICO are already dealt with by Japanese or foreign exchanges, such tokens would be considered to fall within the definition of Crypto Asset under the PSA based on the rationale that exchange markets for such tokens must already be in existence, and ii even if certain tokens are not yet dealt with by Japanese or foreign exchanges, in a case where the token issuer does not give substantial restrictions prohibiting such tokens from being exchanged with Japanese or foreign fiat currencies or Crypto Assets, such tokens would likely fall within the definition of Crypto Asset under the PSA.
According to the ICO Rules, there are two types of ICO, which can be described as follows: i an Exchange Provider issues new tokens and sells such tokens by itself; or ii a token issuer delegates Exchange Providers to sell the newly issued tokens. The concept of ERTRs relates to the rights set forth in Article 2, Paragraph 2 of the FIEA that are represented by proprietary value that is transferable by means of an electronic data processing system but limited only to proprietary values recorded in electronic devices or otherwise by electronic means , excluding those rights specified in the relevant Cabinet Office Ordinance in light of their negotiability and other factors.
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CISIs are deemed to have been formed when the following three requirements are met: i investors i. As a result of the application of disclosure requirements to ERTRs, issuers of ERTRs are in principle required, upon making a public offering or secondary distribution, to file a securities registration statement and issue a prospectus.
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Any person who causes other persons to acquire ERTRs or who sells ERTRs to other persons through a public offering or secondary distribution must deliver a prospectus to such other persons in advance or at the same time. The FIEA Revisions regulate Crypto Asset Derivatives Transactions by establishing certain regulations in respect of Crypto Asset Derivatives Transactions, in order to protect users and ensure that such transactions are conducted appropriately.
Accordingly, business operators engaging in these transactions will need to undergo registration as Financial Instruments Business Operators in the same way as business operators engaging in foreign exchange margin trading. Any entity that intends to be a Financial Instruments Business Operator engaging in Type I Financial Instruments Business is required to meet certain asset requirements, including having:.
It should be noted that, traditionally, the registration requirements under the FIEA are not applicable to non-securities-related Derivative Transaction services provided to certain professional customers.
However, the registration requirements will be applicable to Crypto Asset Derivatives Transactions, regardless of the type of customers involved, in light of the high-risk nature of Crypto Asset Derivatives Transactions. Such professional entities are:. The FIEA Revisions contain the following prohibitions against unfair acts the conduct of which is punishable by penalties in respect of Crypto Asset spot transactions and Crypto Asset Derivatives Transactions, regardless of the violating party:.
However, insider trading is not regulated under the FIEA Revisions at this moment in time, due to difficulties in formulating a clear concept of Crypto Asset issuers, as well as the general inherent difficulties associated with the identification of undisclosed material facts. One of the most important issues in Japanese taxation of cryptocurrencies has been the treatment of consumption tax.
Japanese Crypto Asset Custody Regulations
Under Japanese tax law, sale of Crypto Assets has been subject to consumption tax in cases where the office of the transferor is located in Japan. However, the relevant tax law was amended in Accordingly, if the sold cryptocurrency can be considered a Crypto Asset such as Bitcoin under the PSA, consumption tax will not be imposed. Furthermore, inheritance tax will be imposed upon the estate of a deceased person in respect of Crypto Assets that were held by such person. Under Japanese law, only licensed banks or fund transfer business operators are permitted to engage in the business of money remittance transactions.
However, if the remittance transaction of a Crypto Asset includes the exchange of fiat currencies in substance, such transaction will likely be deemed a money remittance transaction. There is no restriction on an entity simply owning cryptocurrencies for its own investment purposes, or investing in cryptocurrencies for its own exchange purposes. As a general rule, the Crypto Asset regulation under the PSA will not be applicable unless an entity conducts Exchange Services as a business. The mining of cryptocurrencies is not regulated. Mining in itself does not fall under the definition of an Exchange Service.
It should be noted, however, that if the mining scheme is formulated as involving CISIs and includes the sale of equity interests in an investment fund, it will be subject to the relevant FIEA regulations.
Under the Foreign Exchange and Foreign Trade Act of Japan, if a resident or non-resident has received a payment exceeding JPY30 million made from Japan to a foreign country or made from a foreign country to Japan, the resident or non-resident must report it to the Minister of Finance. If a resident has made a payment exceeding JPY30 million to a non-resident either in Japan or in a foreign country, the same reporting requirement applies. On May 18, , the Ministry of Japan announced that the receipt of payments in Crypto Assets or the making of payments in Crypto Assets, the market price of which exceeds JPY30 million as of the payment date, must be reported to the Minister of Finance.
As explained above, a certain payment or receipt of payment exceeding JPY30 million, either by fiat currencies or Crypto Assets, is subject to a reporting obligation to the Minister of Finance under the Foreign Exchange and Foreign Trade Act. An Exchange Provider must report to the relevant authority if it detects a suspicious transaction. There has been no established law or court precedent with respect to the treatment of cryptocurrencies under Japanese succession law.
Under the Civil Code of Japan, inheritance i. Theoretically, cryptocurrencies will be succeeded to by heir s. However, given the anonymous nature of cryptocurrencies, the identification and collection of cryptocurrencies as inherited property would be a material issue unless the relevant private key or password is known to the heir s. Now there are more than 2, cryptocurrencies. They have drawn acclaim as a next generation payments solution, thanks to the conveniences they offer, like remitting money across national borders without going through banks.
But that ease of use means they can be used for illegal transactions and money laundering. A panel of experts in March reported to the U. Security Council that North Korea used cyberattacks and blockchain technology to steal digital currency.
In April , Japan became the first to introduce a registration system for cryptocurrency exchanges. Until then, there were no real rules governing exchange operators, but the government started putting regulations in place to combat money laundering. Such countermeasures are a topic of global discussion. The intergovernmental FATF has a strong influence on the development of regulations and practical implementation of money laundering measures.
Legality of bitcoin by country or territory
In October, its rules were changed such that money laundering regulations could also be applied to cryptocurrency exchanges. The change also called on member countries to develop licensing and registration systems, and to put in place measures that allow for monitoring. It is expected to look at cryptocurrency exchange operators, banks and credit unions, according to a senior FSA official, so there is a pressing need to develop countermeasures.
Exchange companies are being asked to clearly explain what steps they are taking to prevent money laundering. In Japan, exchanges came under the microscope after the theft of about 58 billion yen worth of cryptocurrency from Coincheck in January In June of that year the FSA took the unusual step of issuing business improvement orders to six other operators, citing insufficient money laundering countermeasures and other practices.
In some cases, identity verification was insufficient, and clients were allowed to register post office boxes as personal addresses. Japan has, at times, struggled to deal with money laundering. In its report, the FATF gave Japan its lowest possible rating in regard to financial institutions identifying their clients. In its statement, the group singled out Japan as having an insufficient legal framework. For the FSA, the inspection this fall is a chance to expunge that blemish.
Ahead of the inspection, the G next month is expected to discuss international regulations for cryptocurrencies. Japan will chair the G summit in Osaka. The topic of initial coin offerings, a form of fundraising using digital currencies, could come up.
ADVISORY-References to bitcoin as 'legal tender' in Japan
Already, cryptocurrency exchanges are relocating to countries with looser regulations, like the Mediterranean country of Malta. As the global cryptocurrency playing field shifts, the need for international coordination will only grow. Sign up to our newsletters to get our best stories delivered straight to your inbox.