JAPAN Law and Practice Contributed by: Ken Kawai, Shunsuke Aoki, Takeshi Nagase and Keisuke Hatano, Anderson Mori & Tomotsune
of “crypto-assets” and standardised instruments of crypto-assets created by financial instruments exchanges within the definition of “financial instru - ments”, as well as the inclusion of crypto-asset pric - es, interest rates, etc, within the definition of “finan - cial indicators”, respectively, crypto-asset derivative transactions are now subject to the provisions of the FIEA, regardless of the type of derivative transactions involved. For instance, provision of OTC crypto-asset derivative transactions or acting as an intermediary or broker in relation thereto constitutes Type I Financial Instruments Business under the FIEA. Accordingly, a company engaging in these transactions needs to undergo registration as a Type I FIBO. In addition to various rules of conduct applicable to those Type I FIBOs providing crypto-asset deriva - tive services under the FIEA, it is noteworthy that the amended FIEA introduced strict leverage ratio regulations. If a Type I FIBO engages in crypto-asset derivative transactions, the amount of margins to be deposited by a customer must: (i) if the customer is an individual, not fall below 50% of the amount of crypto-asset derivative transactions (ie, the leverage ratio is limited to two times); or (ii) if the customer is a corporation, not fall below the amount of crypto- asset derivative transactions, multiplied by 50% or the crypto-asset risk assumption ratio based on the historical crypto-asset volatilities as specified in the public notice issued by the FSA entitled “Establish - ing the Calculation Method for Crypto-Asset Risk Assumption Ratio in Crypto-Asset Margin Trading”. 10.9 Decentralised Finance (DeFi) “DeFi” is an abbreviation of decentralised finance. DeFi refers to a decentralised financial system con - sisting of blockchain applications (generally referred to as decentralised applications, or “Dapps”). It is a general term for financial systems and projects that are accessible and transparent to the general public. The terms and degree of decentralisation would vary from project to project. There are no regulations relating specifically to DeFi in Japan. However, where DeFi activities fall within regulated activities under any existing law, such activi - ties may be subject to the relevant regulations. By way of an example, within the scope of DeFi, DEXs
may be subject to regulations relating to CAES as an intermediary for the sale or exchange of crypto-assets under the PSA. See 6.6 Rise of Peer-to-Peer Trading
Platforms for further details. 10.10 Regulation of Funds Crypto-Asset Investment Funds
Funds in the form of collective investment 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 reg - ister as a Type 2 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 FSA; or • the fund delegates its solicitation and marketing activities to a registered Type 2 FIBO. The operator of a fund that mainly invests in crypto- assets is not required to register as an investment management business operator because that regis - tration obligation is only triggered when an operator mainly invests in securities and derivatives. 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 under the PSA because the trading of crypto-assets for the fund’s own invest - ment purposes is not considered to be the trading of crypto-assets “as a business”, which is one of the requirements for the registration obligation. In Japan, the typical and most practical legal forms adopted by such crypto-assets investment funds would be: • a Tokumei Kumiai, a partnership formed pursuant to the Commercial Code; or • an offshore fund, including a Cayman limited part - nership, because of its flexibility in structuring the scheme while mitigating any regulatory risks. Under the current regime, however, an investment trust fund established pursuant to the Investment Trust and Investment Corporation Act (ITICA) may not
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