JAPAN Law and Practice Contributed by: Keisuke Hatano, Takeshi Nagase, Takato Fuki and Tomoaki Katayama, Anderson Mori & Tomotsune
CAES (eg, establishing a call centre for customers in Japan or linking websites targeted at customers in Japan). Conversely, there is no express statutory exemption corresponding to reverse solicitation under the PSA. Note that, under the Amendment Bill of the FIEA, a Foreign Crypto-Asset Transaction Business Operator (meaning a person, other than a FIBO, that engages in the Crypto-Asset Transaction Business in a foreign country in accordance with the laws and regulations of such foreign country) may, without obtaining a reg- istration for the Crypto-Asset Transaction Business, be permitted to (i) conduct transactions with a FIBO (limited to those engaging in the Crypto-Asset Trans- action Business) as the counterparty or in other cases prescribed by Cabinet Order or (ii) conduct transac- tions in response to orders received from residents in Japan without solicitation, among others; however, the details remain subject to the forthcoming Cabinet Order. 4.2 White Labelling Even where an external firm uses a white-label solu- tion that leverages the licence of an existing licensed entity, the external firm must obtain the necessary financial licences, such as a CAESP, FIBO or other applicable licences, in accordance with the crypto- assets or other financial products that it sells. Under Japanese law, it is unclear whether activi- ties related to decentralised finance, including those involving decentralised exchanges, fall within the scope of CAES as defined in the PSA. Accordingly, when considering the provision of DeFi services in Japan, it is necessary to examine on a case-by-case basis whether such services constitute CAES. In addition, the Working Group Report included the status of its policy considerations regarding DeFi. According to the report, with respect to DeFi develop- ers, the Financial System Council intends, while moni- toring developments in other jurisdictions, to consider 5. Decentralised Finance 5.1 Ability to Use DeFi
an appropriate regulatory approach tailored to the technical characteristics of protocols, which would differ from the current regulatory framework applica- ble to CAESPs. The report also states that, for provid- ers of user interfaces (UIs), such as applications that connect to DeFi services and are made available to residents in Japan, the Council intends first to deep- en its understanding of the actual services provided through such UIs, while keeping a close eye on regula- tory developments in other jurisdictions, with a view to imposing proportionate and risk-based regulation. This may include a duty to explain the risks associated with the connected service and AML/CFT measures, such as know-your-client (KYC) obligations. As noted above, the JFSA is still considering its regu- latory response to DeFi and, in practice, CAESPs in Japan are not permitted to utilise DeFi in connection with the provision of their products and services. 5.2 DeFi Structures As set out above, under Japanese law, it is unclear whether DeFi-related activities fall within the scope of CAES. If such activities do constitute CAES, registra- tion as a CAESP would be required and in that case, it would be necessary to establish a stock company ( kabushiki kaisha ). However, in practice, it would gen- erally be difficult to operate DeFi in compliance with existing CAES regulations. Conversely, if DeFi-related activities do not fall with- in the scope of CAES or other regulated activities, there are no particular restrictions on the corporate structure. Nevertheless, under the Companies Act, if a foreign company continues to conduct business in Japan, it must appoint a representative in Japan and register the company accordingly. 5.3 Liability At present, we are not aware of any specific cases in which regulators or courts in Japan have held service providers liable for activities related to DeFi. As noted above, although it is not clear whether DeFi- related activities fall within the scope of CAES, if issues such as consumer harm were to arise, those activities could be construed as constituting CAES and criminal liability might also be pursued on that basis.
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