Crypto In Japan, 2014–2020
By Nikadesh on ALTCOIN MAGAZINE
A brief timeline of cryptocurrency and exchange regulation in Japan from 2014 to 2020.
Regulations including The Banking Act and Financial Instruments and Exchange Law ruled that Bitcoin is neither a currency nor a bond. This meant that banks and securities companies could not deal with it. However, no laws prohibited individuals and legal entities from dealing in BTC, or from receiving it for goods or services — provided they paid applicable taxes. It was yet unclear what taxes might be considered applicable.
The Financial Services Agency (FSA), which was established in 2000, became the body of oversight for cryptocurrency. Its aim was to allow cryptocurrency exchanges an avenue for properly registering with the Japanese government. It established that any future laws pertaining to cryptocurrency must comply with extant anti-money laundering (AML) laws.
The FSA defines crypto as “property [of] value” and not legal tender, even though it can still be used in exchange for goods/services.
Crypto exchanges become regulated by the Payment Services Act. Exchanges are hereafter required to register with the FSA, keep records, take security measures, and “act to take measures to protect customers.” The extent of security and customer protection measures is not thoroughly elaborated upon.
Monetary gains from crypto are classified as “miscellaneous income” and taxed between 15 and 55%.
After the Coincheck and Zaif hacks, all exchanges must register with the FSA. Registration can take up to six months.
Following the hacks, concern for AML and Counter-financing of Terrorism (CFT) measures led to stricter regulations imposed on exchanges. FSA oversight increased, including on-site inspections and (what some called “threatening”) business improvement orders.
The FSA stated: “We have no intention to curb [the development of the cryptocurrency industry] excessively. We would like to see it grow under appropriate regulation.”
The FSA sought to have open communication with exchanges. A “study group” meeting of FSA members, advisors, and exchange leaders was created to discuss proposed regulatory measures for the future. This culminated in the development of the Japanese Virtual Currency Exchange Association (JVCEA). Its purpose is to advise exchanges who are not yet licensed but working to become licensed, to promote regulatory compliance.
During 2018, Japan ranked #44 on LocalBitcoins volume, with <0.1% of trade volume and accounting for only $1.3M. For comparison, the #1 ranked the US had 22.77% of volume accounting for $1.44bn in transactions.
The FSA began deliberation of regulations concerning unregistered firms soliciting investments in crypto because it puts those entities in a “legally gray zone” as far as taxes etc. are concerned.
FSA requirements for exchanges allowing margin trading were outlined. FSA approved draft amendments to financial instruments and payment services laws, which will limit margin trading to 2–4x leverage. These amendments are scheduled to go into effect in April 2020.
It is also determined that all exchanges (not just those enabling margin trading) must register within 18 months of April 2020. Presumably, there will be greater crackdowns on unregistered exchanges following this date.
Rakuten’s previously-acquired Everybody’s Bitcoin, Inc. ceased services to customers at the end of March. Customers were allowed to start new services under the rebranded “Rakuten Wallet, Inc.” toward the end of April. The exchange began by offering only BTC, BCH, and ETH services.
Rakuten provides over 70 internet and Fintech services in 30 countries/regions with around 1.3 billion members worldwide.
The FSA states that “the number of entities which have expressed interest in the market entry as virtual currency operators in Japan (including preliminary consultation/inquiries regarding registration) is more than 140 since last March.”
It elaborates: “Among 23 entities from which FSA has actually received questionnaire[s]…seven entities are under the main evaluation process as of this March.” Of those seven, Rakuten Wallet, Inc. and Decurret Co. are the most recently approved.
Decurret stated that it hoped to support BCH, BTC, ETH, LTC, and XRP at launch. It also advertised the development of iOS and Android apps that would make it easier for people to use crypto. Decurret claimed that it hopes to become like the main bank for cryptocurrency.
An exchange named TaoTao is currently under FSA review to verify its AML tactics and is set to launch on May 30th. It claims it will support BTC and ETH/ERC20 currencies, with support for BCH and LTC sometime in the near future.
At the time of writing, Japan has 19 approved exchanges.
There are currently only five Bitcoin ATMs in Japan. Three are in Tokyo and two are in Fukuoka.
Japan will host a G20 summit to advise other nations’ regulators of their experiences and solutions. A “regulation handbook” has been made, which will be distributed to attendees. Japanese representatives feel that while international regulations to prevent money laundering and terror financing exist in many places, they could be better enforced.
Japanese representatives also criticize that some nations are over-regulating cryptocurrency in unimportant ways rather than focusing on protecting both customers and exchange markets.
Aforementioned regulation changes from March 2019 will go into effect.
Exchanges will henceforth be treated like securities traders and subdivided into different groups for more pointed oversight by the FSA. Examples given for two such subgroups were: exchanges allowing margin trading, and exchanges enabling ICO fundraising.
The FSA stated that it hopes forthcoming regulations will help protect people from Ponzi schemes and enable legitimate companies to conduct cryptocurrency fundraising.