How to get busted for your ICO in Japan
The current rules for Initial Coin Offerings (ICOs) in Japan seem quite clear. There are two options for ICO issuers.
- Get a virtual currency exchange license
- Delegate all sales activity to a Japanese licensed exchange
The challenge with the first approach, as we outlined in our Japan Crypto Exchange Update a few days ago, is that there are allegedly approximately 100 such applications pending. Further, to go through the requirements of obtaining a virtual currency exchange license for the sole purpose of conducting an ICO is probably not the most effective use of resources.
The problem with the second approach is that there are currently no ICO platforms approved by the Financial Services Agency (FSA). None of the 16 licensed virtual currency exchanges in Japan are allowed to sell ICOs. Take for example exchange operator QUOINE, which runs a pure cryptocurrency exchange, CRYPTOS, in Singapore, and a fully FSA licensed fiat/crypto exchange, QUOINEX, in Japan. Their latest offering includes an ICO platform called “ICO Mission Control”. However, this is only available for registered investors on their CRYPTOS platform, i.e. outside of Japan, not on QUOINEX.
Marketing of ICOs in Japan
While discrete and clandestine marketing of ICOs has continued onshore, especially by offshore operators who come to Japan to present their projects, and Macao-based ICO marketer Blockchain Labo has been famously told off by the FSA in February, with the additional threat of criminal charges, the open promotion of coin and token sales by Japan-based entrepreneurs was largely non-existent. Until this past week, it seems.
For reasons that are not entirely clear to me, Japanese company Tebura felt entirely comfortable marketing their token sale on LinkedIn. I might summarize the explanation of the CEO, Akihiro Takagi, in response to my question as follows:
- We had engaged a big law firm that gave us a clean legal opinion, but then they dropped us in light of the changing regulatory environment, and we paid somebody else then
- It is all okay because the FSA has not busted us yet
- Anyway, if the FSA shuts us down, then the investors have an eight day refund period
I have some serious doubts that this will hold as a legal defense, but then I am not a lawyer, and particularly, I am not Tebura’s lawyer.
The next approach was a bit less public and came through a LinkedIn direct message. Based on the MODULE LinkedIn page, the project is based out of Hong Kong, and many of the team members are located in Japan, including the marketer, Yuichi Yoshida, who contacted me.
Obviously, the statistical sample is very small, and it could be just coincidence to notice two such solicitations within a few days. However, it does appear as if the continued focus of the FSA on strengthening the virtual currency exchanges does not allow them to direct sufficient resources to other aspects of investor protection, and the lack of action against such marketers has encouraged them to operate much more openly. Again, without being a lawyer, it seems a risky approach to market your ICO in that way, as the proverbial hammer will come down eventually. Quo vadis, FSA?