The Financial Services Agency (FSA) of Japan announced a major and pivotal shift in the regulation of crypto assets, aimed at enhancing investor protection by subjecting digital assets to the country's main securities law, the Financial Instruments and Exchange Act (FIEA). This move, away from the current framework of the Payment Services Act (PSA), is driven by the increasing use of cryptocurrencies as an investment tool and the urgent need to address fraud and security risks faced by consumers.
📈 Key points of the new regulatory proposal:
1. Higher Business Standards
* Parity with traditional intermediaries: Cryptocurrency exchange services will be regulated under rules that equate to "Type 1 Financial Instruments Business," placing them under the same high standards that traditional securities brokers are subject to.
* Stricter conduct and customer protection rules: This includes more stringent rules to ensure professional conduct and protect customer interests.
2. Enhanced Information Disclosure
* Two-tier disclosure system: A new two-tier system has been proposed to combat information asymmetry in the market:
* For issuer-funded projects: The issuer must provide detailed and accurate disclosures.
* For assets without a specified issuer (like Bitcoin): Exchanges dealing with these assets will be responsible for providing investors with the necessary basic information.
3. Stronger Enforcement
* More powerful enforcement tools: The shift to the FIEA will provide authorities with more stringent enforcement tools, including imposing harsher penalties on unregistered operators and the ability to issue emergency injunctions.
4. Expanding banking participation
* Allowing banks: The Financial Services Agency (FSA) is also considering regulations that allow banking groups to register as operators of cryptocurrency exchanges through their securities subsidiaries.
* Impact: This change aims to integrate digital assets with traditional financial systems, providing security and convenience for investors and allowing banks to meet the growing demands of customers.
5. Targeted scope of regulations
* Crypto assets: The proposed changes apply to crypto assets as currently defined.
* Exceptions: Both non-fungible tokens (NFTs) and digital money-like stablecoins have been explicitly excluded from this new regulatory framework for now, although the regulation of stablecoins is subject to other legal modifications (Payment Services Act, PSA, amended in 2023).
💡 The significance of this shift
This proposal clearly indicates Japan's transition towards a more mature and secure cryptocurrency market, where oversight of digital assets is aligned with established financial principles. The goal is to provide a more stable and regulated investment environment for investors, leveraging the expertise and background of securities markets to regulate the behavior of cryptocurrency exchanges.
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