Crypto regulations in Japan likely to help new market entrants in the long run

  • A Japanese law firm reps said that local regulations for crypto exchanges are “far stricter” than in most other nations.
  • However, they believe this will be helpful for new players in the long run.

A Japan-based law firm So & Sato, released a new report, which reveals that strict crypto regulations in the country are likely to benefit new players in the long term. The report covered all aspects of digital assets in Japan, from tokenized securities to crypto derivatives.

In an interview with Cointelegraph Japan, Joerg Schmidt and So Saito from So & Sato said that local regulations for crypto exchanges are “far stricter” than in many other nations. However, they believe this will be helpful in the long run because it encourages the traditional finance world to get involved:

The market is highly regulated in Japan. What seems to be a regulatory overkill, at first sight, is likely to help the market to mature in the mid to long term. This will allow more institutional players to enter the market and to increase their stake in the digital asset space.

Generally, crypto-related regulations in the country fall under the Payment Services Act (PSA) and the Financial Instruments and Exchange Act (FIEA). In May, amendments passed for both acts tightening the current regulations will enter into force. Under the new PSA regulations, crypto exchanges have to employ third-party operators to keep hold of their users’ money, separating it from their own cash flow. 

As per the local law, Japanese crypto exchanges must obtain a license through the country’s Financial Services Agency (FSA). Meanwhile, foreign-based exchanges must hold a license both in their home jurisdiction and in Japan. 

To register as a crypto asset exchange [in Japan], companies must meet certain criteria. Local companies must be incorporated as a stock company and have a minimum capital of JPY 10 million. An exchange must further ensure that its net assets do not fall below the amount of users’ funds that are stored in a hot wallet.

At the moment, there are 23 exchanges registered with the FSA, although none of them are yet foreign operated. OKCoin, which operates a subsidiary in Japan, recently obtained a license. Explaining why the regulations seem to discourage overseas exchanges, So said:

Some Chinese exchanges have purchased an already-licensed Japanese exchange, so it’s open for foreign exchanges to take over licensed entities in Japan. But under the regulations, if foreign crypto exchanges themselves want to obtain Japanese licenses, they need to have similar licenses in their countries under the current regulations. There are not so many similar exchanges in foreign countries.

So & Sato said that exchanges from countries such as the US are likely to be granted licenses because they have thorough regulations in place.