Japan Proposes Merging Crypto Oversight with Securities Act

TLDR

• Japan’s government proposes moving cryptocurrency regulation under the Financial Instruments and Exchange Act.
• The Financial Services Agency aims to align crypto oversight with securities law for better investor protection.
• Cryptocurrencies would be classified alongside securities, subjecting issuers and exchanges to stricter compliance requirements.
• Some experts, including Naoyuki Iwashita, express concerns over applying securities law to all cryptocurrencies.
• The FSA plans to submit a legislative amendment to the Japanese Diet next year to formalize the changes.

Japan’s government is proposing a shift in cryptocurrency regulation, considering merging crypto oversight under the Financial Instruments and Exchange Act (FIEA). Currently, cryptocurrencies are governed by the Payment Services Act. This move aims to align crypto assets with securities law better and provide stronger investor protections.

Regulating Cryptocurrencies as Securities

Japan’s Financial Services Agency (FSA) presented a proposal to regulate cryptocurrencies under the Financial Instruments and Exchange Act. The proposal was discussed during a Financial System Council working group meeting on September 2. The FSA believes the shift will address the increasing role of cryptocurrencies as investment products.

Under the new framework, cryptocurrencies would be classified similarly to securities. This would subject issuers and exchanges to stricter compliance requirements. The FSA aims to enhance transparency and reduce market misconduct by introducing these rules.

Concerns Over Extending Securities Law

Some advisory council members raised concerns about the proposal’s broader application. Naoyuki Iwashita, a Kyoto University professor, emphasized the risks of labeling all cryptocurrencies as securities. He noted that major tokens like Bitcoin and Ethereum may not face significant issues under the FIEA.

However, Iwashita highlighted concerns over Initial Exchange Offerings (IEOs) in Japan. He referred to data showing that many domestic IEOs have lost significant value, with some tokens losing over 90%. He argued that treating these assets as securities under the FIEA would be “unthinkable.”

Japan Upcoming Legislative Amendment

Despite the concerns, the FSA plans to submit the legislative amendment during the next ordinary Diet session. This would formally incorporate cryptocurrencies into the FIEA, shifting oversight from the Payment Services Act. However, the FSA has emphasized that cryptocurrencies’ role in payments would remain unaffected by the new framework.

The proposal has sparked ongoing debates about how best to regulate cryptocurrencies in Japan. While the FSA believes this change will enhance investor protection, the council remains divided over the potential risks involved. The outcome of this shift will determine the future of crypto regulation in Japan.

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