Japan’s Crypto Association issues ICO regulation recommendations

With the aim of achieving the sound development of the cryptocurrency business, JCBA launched its ICO working group at the end of last year with the goal of developing appropriate ICO laws and regulations from the perspective of an organization representing cryptocurrency business operators – an approach favoured by Japanese regulators.

Regarding ICO tokens, the JCBA says "Given that ICO tokens may promote Japan’s industrial
development in the future as a new financing method, it is not desirable to impose extremely strict regulations on those with a low risk from the perspective of user protection, which would make it virtually impossible to conduct ICOs".

The JCBA also pointed out that considering regulations take into account investment elements that are necessary even for non-investment ICOs, imposing stricter regulations on ICOs compared to Security Token Offerings (STOs) lacks balance.

The JCBA says there is a need to clarify whether security tokens, which are subject to the
Financial Instruments and Exchange Act, fall under "Article 2 (1) Securities" or "Article 2 (2)
Securities," and suggested the exclusion of security tokens from the Payment Services Act, in order to avoid duplicating regulatory requirements imposed by the Financial Instruments and Exchange Act and the Payment Services Act.

With regards to an onus for due diligence being placed on exchanges, the JCBA said because information on issuers and ICO tokens is held primarily by issuers rather than cryptocurrency exchanges, it is not appropriate to impose excessively strict duties (a duty to investigate and a duty to provide detailed information) on cryptocurrency exchanges. The association made the point that if the onus for such investigation was to fall on the exchanges, then they would be required to charge large fees to issuers in order to fund those responsibilities.

Regarding stablecoins (price-stable cryptocurrencies), while their regulatory framework remains
unclear in Japan, given that they are issued based on similar technological platforms to those of cryptocurrencies and they are primarily traded on cryptocurrency exchanges overseas, transaction risk and user protection should be the same as cryptocurrencies. Therefore, the JCBA believes that it is appropriate to legally classify stablecoins as cryptocurrencies.

Rakuten debuts Rakuten Wallet

In other Japanese news, a cryptocurrency exchange under the Rakuten brand has made its debut. In August 2018, e-commerce giant Rakuten (often referred to as Japan’s Amazon), acquired all of the shares of the cryptocurrency exchange everybody’s bitcoin through its consolidated subsidiary Rakuten Card Company – marking its entry into the cryptocurrency business.

Everybody’s bitcoin has now relaunched and rebranded as Rakuten Wallet. The change of trade name is intended to enhance the Rakuten Group’s businesses and maximize synergies. Rakuten Wallet, Inc. issued a press release, reporting its capital increase to JPY 1,380 million with additional capital provided by Rakuten Card Co., Ltd.

Rakuten is also sent to update its payment application Rakuten Pay to enable users to use all of Rakuten’s electronic points and money, namely Rakuten Points, Rakuten Cash, Rakuten Edy, and Rakuten Pay, within one application. Given the new trade name Rakuten Wallet, the Rakuten Pay application is expected to handle cryptocurrency payments in the future.

Legal tweaks

Finally, the Japanese government has flagged upcoming changes to the Financial Instruments and Exchange Act and Payment Services Act.

Included in its list is changing the term "virtual currency" to "crypto asset." Although "virtual currency" has been widely used by the Financial Action Task Force (FATF) and appears in many international laws and regulations, the term "crypto asset" has become increasingly popular at international forums, including the Group of Twenty (G20) summit. The Japanese government also wants to confine its use of the word ‘currency’ to sovereign currencies like the yen and dollar.

Other proposed revisions include requiring crypto exchanges to secure a source of funds to repay customers for any losses incurred in the case of a hacking attack. In terms of ICOs, the proposal is that ICO events should be subject to regulation by the Financial Instruments and Exchange Act and that ICO operators should be registered.