Japan Implements Significant Changes to Cryptocurrency Regulation Today

Major changes are happening in the cryptocurrency space in Japan as new cryptocurrency regulation enters into force today. Among notable changes are the regulation of crypto custody service providers and crypto derivatives businesses. Japan has 23 regulated crypto exchanges; unregulated platforms have modified their terms of service affecting Japanese residents.

Japan Adopts New Way to Regulate Crypto Industry
The amendments to the Payment Services Act (PSA) and the Financial Instruments and Exchange Act (FIEA) that revise the regulatory framework for cryptocurrency in Japan go into effect on May 1. They were proposed by the country's top financial regulator, the Financial Services Agency (FSA), and adopted by the Diet on May 31 last year. The finalized rules were published on April 3 along with the FSA's answers to public comments. International law firm Morrison & Foerster described:

The regulations coming into effect as of May 1, 2020, represent a significant change in the way the FSA will regulate cryptocurrency-related business activities of operators in Japan going forward.

Among the major changes are the regulation of cryptocurrency custody service providers that do not sell, purchase, or intermediate the sale and purchase of cryptocurrencies and cryptocurrency derivatives businesses. The former now falls under the PSA while the latter must register under the FIEA. A crypto derivatives business that also provides crypto custody service may need to register as a cryptocurrency exchange. In addition, the FSA previously explained to news.Bitcoin.com the implication of the new law on the possibility of a bitcoin exchange-traded fund (ETF) being approved in Japan.

The amendments "are quite extensive and many issues regarding the scope, applicability, and relevance of the regulations remain open to interpretation," the law firm opined. The regulatory changes are summarized here.

Japanese Cryptocurrency Landscape Changing, Unlicensed Crypto Exchanges Exiting
Japan currently has 23 FSA-approved cryptocurrency exchanges. As the new regulation takes effect, unlicensed crypto trading platforms modify their terms of service to exclude Japanese users in compliance with the new law.

Global cryptocurrency exchange Bitmex, for example, announced that it would stop providing services to Japanese residents starting from 11 p.m. JST on April 30 for first-time registered users and 12 a.m. on May 1 for existing registered users. "We are restricting access to users who are Japan residents," the exchange confirmed on Tuesday, adding:

The restrictions are in response to the amendments to the Japan Financial Instruments and Exchange Act and Japan Payment Services Act effective as of 1 May 2020.

"We will continue to work with the Japanese regulatory authorities to support their aims for the Japan market and will keep our Japan users updated," Bitmex wrote.

Furthermore, the FSA announced on April 30 that it has approved two self-regulatory organizations (SROs) in the crypto sector: the Japan STO Association and the Japan Virtual and Crypto Assets Exchange Association (JVCEA). These organizations work closely with the FSA to enforce strict standards on the country's crypto sector.