JAPAN Law and Practice Contributed by: Ken Kawai, Shunsuke Aoki, Takeshi Nagase and Keisuke Hatano, Anderson Mori & Tomotsune
that issuer will not be required to register under the PSA; however, it must still comply with certain notice requirements. By contrast, an issuer of PPIs that may be used not only for payments to the issuer for its goods or services, but also for payments to other par - ties designated by the issuer, will be required to regis - ter as an “issuer of PPIs” under the PSA. Regulation on Issuers of NFTs See 10.12 NFTs . Regulation on Issuers of Digital Securities As mentioned in 6.2 Regulation of Different Asset Classes , the FIEA has conventionally classified secu - rities into the following two categories: • traditional securities such as shares and bonds (Paragraph 1 Securities); and • contractual rights such as trust beneficiary inter - ests and collective investment scheme interests (Paragraph 2 Securities). Whereas Paragraph 1 Securities are subject to rela - tively stricter requirements in terms of disclosures and licensing/registration because they are highly liquid, Paragraph 2 Securities are subject to relatively looser requirements because they are less liquid. However, if securities are issued using an electronic data pro - cessing system such as blockchain, it is expected that such securities may have higher liquidity than secu - rities issued using conventional methods – regard - less of whether they are Paragraph 1 or Paragraph 2 Securities. For this reason, the FIEA introduced a new regulatory framework for securities that are trans - ferable through electronic data processing systems. Under the FIEA, such securities are classified into the following three categories: • Paragraph 1 Securities such as shares and bonds, which are transferable by using electronic data pro - cessing systems (Tokenised Paragraph 1 Securi - ties); • contractual rights such as trust beneficiary inter - ests and collective investment scheme interests, which are conventionally categorised as Paragraph 2 Securities and are transferable by using electron - ic data processing systems (electronically recorded transferable rights (ERTRs)); and
• contractual rights such as trust beneficiary interests and interests in collective investment schemes, which are conventionally categorised as Paragraph 2 Securities and are transferable by using electronic data processing systems but have their negotiability restricted to a certain extent (Non-ERTR Tokenised Paragraph 2 Securities). An issuer of Tokenised Paragraph 1 Securities or ERTRs is, in principle, required to file a securities reg - istration statement (as is the case for traditional Para - graph 1 Securities) before making a public offering or secondary distribution, unless the offering or distribu - tion falls under any category of private placements. Any person who engages in the business of the sale, purchase or handling of the offering of Tokenised Par - agraph 1 Securities or ERTRs is required to undergo registration as a Type I FIBO. In light of the higher degree of freedom in designing Tokenised Paragraph 1 Securities or ERTRs and the higher liquidity of these securities, a Type I FIBO that handles these digital securities will be required to control risks associated with digital networks such as blockchain used for digi - tal securities. Regulation on Issuers of Stablecoins Under the amended PSA, only banks, fund transfer services providers, trust banks and trust companies that are licensed or registered in Japan may issue EPIs directly to Japan residents. See 1.1 Evolution of the Fintech Market for more details on the regulations applicable to intermediaries of EPIs. Challenges to the Tokenisation of Real-World Assets Several real-world asset (RWA) token projects are cur - rently in development in Japan, such as the “Sake World NFT”, which operates a marketplace for NFTs called “Sake Tickets” that are redeemable for Japa - nese sake, and “NOT A HOTEL”, a service selling frac - tional ownership rights in vacation homes as NFTs. The issuance and sale of tokens representing rights to various RWAs (RWA Tokens) in Japan is expected to continue in the foreseeable future. There is, however, no specific definition or regulatory framework for RWA Tokens under Japanese law. As a result, their legal nature must be determined on a
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