Japanese Regulator Says Stablecoins Are Not Cryptocurrencies

Japanese regulatory body, the Financial Services Agency (FSA) announced that stablecoins should be treated under the Japanese law. However, the regulator noted that these assets cannot be treated as usual cryptos.

30 October 2018 – Japan’s Financial Services Agency (FSA) has made an announcement in regards to stablecoins. The FSA outlines that this type of assets should be treated and traded under Japanese law, yet not in the same way other cryptocurrencies are regulated. 

Japanese Crypto Laws Do not Apply to Stablecoins

As of the moment, there are two key laws that apply to cryptocurrencies in Japan. First, is the Fund Settlement Law. It classifies cryptocurrencies as a means of payment. This makes them exempt from the consumption tax in Japan. 

The second law is dubbed the Payment Services Act. This law implies that crypto exchanges must register with the FSA. The procedure of registration and the process of authorization for operations as a crypto exchange were tightened back in May 2018.

The Japanese regulator recently noted that stablecoins are somewhat different from the usual cryptos. The FSA said:

“In principle, stablecoins pegged by legal currencies do not fall into the category of ‘virtual currencies’ based on the Payment Services Act.”

Due to the features of stablecoins, the FSA stated “it is not necessarily appropriate” for them to suggest what stablecoin operators need to “obtain or register before issuing stablecoins.” For exchanges that offer stablecoins, the FSA stated:

“Generally speaking, companies need to register as the ‘Issuer of Prepaid Payment Instruments’ or the ‘Funds Transfer Service Providers’ based on [the] Payment Services Act.”

These “prepaid payment instruments” can be divided into two categories: they can be either for a business’ use or for provision to a third-party business. The two categories have their own registration and reporting requirements. 

Strict Japanese Crypto Exchange Regulations

“Fund transfer service providers” can perform transactions of less than the equivalent of $9,000 without a banking license. However, transactions over $9,000 should be conducted by an authorized bank. 

The strict controls that were adopted by the FSA back in May 2018 aimed to protect Japanese investors from hacking attacks, like the $500 million Coincheck hack in January 2018. As a part of the Payment Services Act, crypto exchanges should register with the FSA. The tighter rules imply that they have to comply with the five key criteria. They also should document and support their applications and arrange visits from the FSA prior to trading. 

It is understood that the issue of stablecoin classification soon could be viable. Japanese GMO Internet Group stated that it collaborates with Aozora Bank Group in a bid to build an online banking business supported by Blockchain technology. 

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