JAPAN Law and Practice Contributed by: Keisuke Hatano, Takeshi Nagase, Takato Fuki and Tomoaki Katayama, Anderson Mori & Tomotsune
2.4 Token Issuance Although the PSA does not expressly regulate ICOs, if the issuer itself sells the tokens, such activity is likely to fall within the scope of CAES. In addition, the JVCEA’s “Rules for Selling New Crypto-Assets” (the “ICO Rules”) set out detailed rules governing ICOs. Under the ICO Rules, there are two types of ICOs which can be described as follows: (i) an offering where a CAESP issues new tokens and sells such tokens by itself; or (ii) an offering where a token issuer delegates the sale of newly issued tokens to a CAESP. In practice, token issuance is often carried out through the method described in (ii) above, which is referred to as an Initial Exchange Offering (IEO). Generally speaking, under the ICO Rules, the follow- ing requirements apply for both types of ICOs: • maintenance of a system for review of the targeted business that raises funds via ICOs; • disclosure of information on the token, the token issuer, the targeted business and the like; • segregated management of funds (both fiat and crypto-assets) raised by an ICO; • proper account processing and financial disclosure of funds raised by an ICO; • safety assurance in respect of the newly issued tokens, their blockchain, smart contracts, wallet tools and the like; and • proper valuation of newly issued tokens. Furthermore, amendments to the FIEA are expected to impose disclosure requirements on crypto-asset issuers (where applicable) that are similar to the dis- closure regime applicable to securities. 2.5 Market Abuse Under the current FIEA, regulations regarding crypto- assets, such as general prohibitions on misconduct and bans on the dissemination of false rumours, fraudulent schemes and market manipulation, are in place, similar to the regulations governing unfair trad- ing of listed securities and other instruments; how- ever, there are no provisions directly regulating insider
For example, funds in the form of collective invest- ment schemes that invest in crypto-assets are subject to the same rules and regulations as other investment funds that take the form of a partnership. Therefore, in order to solicit investments, the operator of the fund must register as a Type 2 Financial Instruments Busi- ness Operator (FIBO) unless: • there are no more than 49 non-professional inves- tors with one or more professional investors and notification in connection therewith has been made to the JFSA; or • the fund delegates its solicitation and marketing activities to a registered Type 2 FIBO. In order for the fund operator to obtain registration as a Type 2 FIBO, the application must be filed with the relevant Local Finance Bureau and undergo a registration review. Once registered, a Type 2 FIBO is required to maintain a minimum capital of JPY10 million under the FIEA and is also required to adhere to certain codes of conduct that seek to protect the interests of investors, including, but not limited to, the duty of loyalty, the duty of care of a good manager, the suitability rule, disclosure obligations, advertising restrictions and the prohibition against compensating customers for their losses. The operator of a fund that mainly invests in crypto- assets is not required to register as an investment management business operator, as that registra- tion obligation applies only when an operator mainly invests in securities and derivatives. Note that, under the Amendment Bill of the FIEA, investment manage- ment activities involving crypto-assets (in the spot market) as investment targets are expected to fall within the scope of the investment management busi- ness regulations under the FIEA. In addition, investment in crypto-assets by the opera- tor of a fund is not likely to trigger the requirement to register as a CAESP because the trading of crypto- assets for the fund’s own investment purposes is not considered to be the trading of crypto-assets “as a business”, which is one of the requirements for the registration obligation.
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