JAPAN Law and Practice Contributed by: Keisuke Hatano, Takeshi Nagase, Takato Fuki and Tomoaki Katayama, Anderson Mori & Tomotsune
1.2.6 Industry and Trade Bodies For the purposes of ensuring the proper provision of CAES and EPIES and protecting users of those services, the JVCEA was appointed as an approved self-regulatory organisation to regulate CAESPs and EPIESPs. The primary objectives of the JVCEA are to: • formulate self-governance rules; • inspect its members to ensure they are complying with the relevant self-governance rules; and • handle user complaints. 2. Regulation 2.1 Regulators and International Alignment The main regulatory body for fintech businesses is the JFSA, including the local finance bureaus to which it has delegated certain aspects of its authority. The JFSA administers the registration system for CAESPs and EPIESPs and oversees their day-to-day opera- tions. In addition, in the event of serious issues, such as violations of laws and regulations by CAESPs or EPIESPs, the JFSA has the authority to indepen- dently issue administrative actions, such as busi- ness improvement orders. The JFSA’s regulatory and supervisory approach is to enhance user protection while also fostering innovation. In practice, however, regulations have been tightened to protect users in the event of an incident (such as a hacking incident). The Financial Action Task Force (FATF) has been influ- ential in the development of fintech-related regulations in Japan. For instance, the Guidance for a Risk-based Approach to Crypto-Assets by the Financial Action Task Force (“FATF Guidance”) in June 2015 was the trigger for the introduction of regulations on crypto asset exchanges in Japan. As a recent reaction to the FATF’s activities, the so- called “FATF Recommendations Response Bill,” which was submitted to the Diet by the Cabinet Sec- retariat on 26 October 2022, was passed by the Diet on 2 December 2022. The Bill was created in response to the Mutual Evaluation Report published by the FATF on 30 August 2021, which recommended that Japan should revise its laws to strengthen measures against anti-money laundering (AML) and countering
the financing of terrorism (CFT) in Japan, including by strengthening asset freezing measures and enhanc- ing measures to deal with crypto assets. In order to strengthen Japan’s AML/CFT measures, six legisla- tive acts, including the Act on Prevention of Transfer of Criminal Proceeds and the Foreign Exchange and Foreign Trade Act, were amended collectively. The amendments entered into force in stages through 1 April 2024. Specifically, the major changes are (i) the introduction of a travel rule for CAESPs and EPIESPs and (ii) the introduction of an obligation for banks, CAESPs and EPIESPs to establish a system for asset freezing measures. Furthermore, the JFSA proactively contributes to the FATF’s activities; for instance, a senior JFSA official serves as the Co-Chair of the Policy Development Group (PDG). The JFSA also places importance on the regulations and recommendations of the Bank for International Settlements (BIS) and the International Organisation of Securities Commissions (IOSCO). For example, the JFSA has submitted the Amendment Bill to the Diet, which includes provisions that would subject crypto assets to insider trading regulations, a move consid- ered in line with IOSCO’s recommendations. 2.2 Crypto-Asset Regulatory Frameworks Overview of the Regulatory Framework Under the Current PSA A person who engages in the purchase and sale of crypto-assets as a business is required to be regis- tered as a CAESP under Article 63-2 of the PSA. Only CAESPs are permitted to engage in CAES. The PSA requires a person who provides CAES to be registered with the JFSA. A person who engages in CAES with- out registration is punishable by confinement punish- ment ( koukin - kei ) for a term not exceeding three years or by a fine not exceeding JPY3 million or both under Article 107, Item 5 of the amended PSA. Definition of “Crypto-Asset” The term “crypto-asset” is defined in the amended PSA as follows. • A proprietary value (limited to that recorded on electronic devices or other objects by electronic
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