JAPAN Law and Practice Contributed by: Ken Kawai, Shunsuke Aoki, Takeshi Nagase and Keisuke Hatano, Anderson Mori & Tomotsune
ber of financial institutions have entered into this new market. For more details on recent developments in this area, see 1.1 Evolution of the Fintech Market . Regulatory discussions and developments on NFTs and NFT platforms in Japan have accelerated in tan - dem with global trends in the field of NFTs. For the legal implications of such developments in Japan, see 2.13 Conjunction of Unregulated and Regulated Products and Services and 10.12 NFTs . In addition, the FSA introduced new regulations on stablecoins ahead of regulators in other jurisdictions (as described in 10.13 Stablecoins ), thereby clarify - ing the rules applicable to issuers and intermediaries. Stablecoins to be issued in compliance with the new regulations are expected to be used for settlement transactions in respect of digital securities or other types of assets (including NFTs) on blockchain. 10.2 Local Regulators’ Approach to Blockchain Generally speaking, financial regulators in Japan are receptive to fintech innovation – including those using blockchain and technology-driven new entrants in the regulated financial services markets – and are actively participating in discussions taking place in this indus - try. However, various consumer protection issues have arisen in connection with the Japanese fintech indus - try. These have resulted in a decision made by regula - tors to strengthen the regulations governing emerging fintech businesses in order to address new risks to consumers arising from the new services. Notably, the regulatory framework for crypto-assets was amended to enhance customer protection by introducing stricter regulations. This was in response to a major incident in January 2018 in which one of the largest crypto-asset exchanges in Japan announced it had lost approxi - mately USD530 million worth of crypto-assets after a hacking attack on its network. The new regulatory framework entered into force on 1 May 2020. 10.3 Classification of Blockchain Assets In Japan, regulations applicable to certain blockchain assets (ie, tokens issued on blockchain) may vary,
depending on the nature of those assets (as per the following classifications). Crypto-Assets The authors believe that a large proportion of tokens issued on blockchain constitute crypto-assets as defined in the PSA. See 10.11 Virtual Currencies for regulations applicable to issuers of crypto-assets. Prepaid Payment Instruments Tokens issued on blockchain that are similar to pre - paid cards, in that the tokens may be used as con - sideration for goods or services provided by token issuers, may be regarded as PPIs as defined under the PSA. See 10.4 Regulation of “Issuers” of Blockchain Assets for regulations applicable to issuers of PPIs. Non-Fungible Tokens NFTs are irreplaceable tokens minted on a blockchain. The applicability of the PSA to an NFT depends on whether such NFT constitutes a crypto-asset. How - ever, NFT platforms that enable the conduct of NFT- related transactions are not subject to financial regu - lation. See 2.13 Conjunction of Unregulated and Regulated Products and Services and 10.12 NFTs . Digital Securities Tokens issued on blockchain that represent any secu - rities as defined in the FIEA would be regulated under FIEA as described in 10.1 Use of Blockchain in the Financial Services Industry and 10.4 Regulation of “Issuers” of Blockchain Assets . Stablecoins Stablecoins that are redeemable for fiat currencies (fiat-backed stablecoins) are regulated as EPIs, as noted in 10.13 Stablecoins . 10.4 Regulation of “Issuers” of Blockchain Assets Regulation on Issuers of Crypto-Assets See 10.11 Virtual Currencies . Regulation on Issuers of Prepaid Payment Instruments An issuer of PPIs is required to comply with applica - ble rules under the PSA. If a PPI may only be used for payments to the issuer for its goods or services,
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