Japan and Crypto

Japanese Regulations on Crypto Will Help the Market Mature

Japan and Crypto

Reports from Japan suggest that strict regulations in the country will likely benefit new crypto players in the foreseeable future

Last month, So & Sato, a Japan-based law firm specializing in crypto and blockchain, released a report that covers various aspects of digital assets within the country spanning from tokenized securities to crypto derivatives.

Joerg Schmidt and So Saito from So & Sato said that local regulations for cryptocurrency exchanges are more rigid than what is found in other countries. Nevertheless, they insist the regulations have their benefit. One thing they agreed on is that the local regulations are advantageous in the long run. The reason for this is that it creates a platform for the traditional finance world to become part of the operation.

“The market is highly regulated in Japan. What seems to be a regulatory overkill, at first sight, is likely to help the market to mature in the mid to long term. This will allow more institutional players to enter the market and to increase their stake in the digital asset space.”

In Japan, regulations involving crypto usually fall under the Payment Services Act (PSA) and the Financial Instruments and Exchange Act (FIEA). Recently certain amendments have been made on both acts, thus tightening existing regulations, and these amendments will come into play by May.

Under the new PSA regulations, crypto exchanges are mandated to use third-party operators to hold clients money, thus separating it from their own cash flow. 

How Foreign-Operated Crypto Exchanges Will React?

The local regulation states that home-based cryptocurrency exchanges must acquire a license through the country’s Financial Services Agency (FSA). On the other hand, foreign-based exchanges must obtain a license from Japan and their home country. 

“To register as a crypto asset exchange [in Japan], companies must meet certain criteria. Local companies must be incorporated as a stock company and have a minimum capital of JPY 10 million. An exchange must further ensure that its net assets do not fall below the number of users’ funds that are stored in a hot wallet,” the report mentioned

According to the law firm, the most likely exchanges that would acquire licenses would be those from countries that have thorough regulations such as the US. While local regulations might be a bit harsh for foreign exchanges at the moment, the law firm that things will soften up in the future



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