The Japanese Financial Services Agency (“FSA”), Japan’s primary financial regulator, announced on March 15, 2019, that it was submitting a bill to the Diet to amend both the Payment Services Act (the “PSA”) and the Financial Instruments and Exchange Act (the “FIEA”) relating to how the purchase and sale of cryptocurrencies is regulated in Japan (the “Proposed Amendment”).
In Japan, the current regulations governing businesses that purchase or sell cryptocurrencies, intermediate the purchase or sale of cryptocurrencies, or provide exchange services for cryptocurrencies (collectively, “Virtual Currency Exchange Services”) were introduced via an amendment to the PSA in 2016, which came into effect on April 1, 2017. Under the PSA, companies providing Virtual Currency Exchange Services on a “business basis” are generally required to register with the FSA in advance.
As of March 25, 2019, there were 19 registered providers of Virtual Currency Exchange Services (“Virtual Currency Exchange Service Providers”) in Japan, and it has been reported that there are many others waiting in line for their licenses to be issued. However, the FSA delayed processing pending applications after a series of sanctions were imposed on several Virtual Currency Exchange Service Providers (and other entities grandfathered in to operate such services under the 2017 amendment to the PSA) over the past year due to issues, such as the insufficient management of their operations, failure to comply with applicable regulations, and losses of a significant quantity of cryptocurrencies as a result of security breaches and computer hacks. As a result of these events, the FSA raised its standards for granting new licenses (essentially temporarily suspending the process) while simultaneously preparing the amendments to the PSA that were recently proposed.
Prior to drafting the Proposed Amendment, the FSA set up a Study Group on Virtual Currency Exchange Services in March 2018, which published a report regarding its recommendations on December 21, 2018. The Proposed Amendment is generally in line with the recommendations set forth in the report.
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