JAPAN Trends and Developments Contributed by: Keiji Tonomura, Shu Sasaki, Kazuyuki Ohno and Otoki Shimizu, Nagashima Ohno & Tsunematsu
JPYC Inc issues stablecoins under its Type II Funds Transfer Service Provider Licence. Stablecoins issued under this licence are subject to a regulatory cap of JPY1 million per issuance/redemp - tion transaction. JPYC Inc has implemented a prac - tical 24-hour limitation of JPY1 million. Additionally, KYC (know-you-customer) verification under the Act on Prevention of Transfer of Criminal Proceeds is required during issuance/redemption. However, in principle, no limitation applies to the subsequent transfer of the stablecoin. Furthermore, it is possible to receive and hold such stablecoins transferred from users who have not undergone KYC verification. This allows users to freely transfer JPYC’s stablecoins, similarly to USDC or USDT. The stablecoin issuer under the Type II Funds Transfer Service Provider Licence must hold a reserve equal to or exceeding 101% of the issued value. The reserve can be in the form of a deposit, bank guarantee or trust. In practice, trusts are often used for their con - venience. The trust property portfolio can include not only deposits but also government bonds. Stablecoin issuer as the bank Several major Japanese financial institutions (Mitsubi - shi UFJ Bank, Sumitomo Mitsui Banking Corporation, Mizuho Bank, SBI Group) have also announced the commencement of trials into stablecoin issuance businesses. It is important to note that in its May 2023 regulatory response to public comments, the Japanese Financial Services Agency (JFSA) stated the following: “Con - cerns exist regarding banks’” involvement in sta - blecoins using permissionless blockchains from the perspective of the prudent and appropriate operation of banking business, as demonstrated internationally. Therefore, we believe careful consideration is neces - sary regarding banks issuing stablecoins. The JFSA had previously expressed caution regarding banks issuing stablecoins, considering factors such as the need to ensure bank soundness and taking into account documents like the FSB’s “High-Level Rec - ommendations for the Regulation, Supervision and
Oversight of Global Stablecoin Arrangements: Final Report” (17 July 2023). However, the JFSA has decided to support the joint issuance of a stablecoin by Japan’s three major banks as part of the “FinTech Proof-of-Concept Hub and Payment Innovation Project (PIP)”. This decision indicates that the JFSA is encouraging bank groups to explore stablecoin initiatives amid growing stable - coin-related business activity both domestically and internationally. Trust-based stablecoins When it comes to a bank’s stablecoin, trusts are con - sidered a leading approach. A trust-based stablecoin is issued as a trust interest in a money trust. As trust interests, these stablecoins offer bankruptcy isolation, and specific constraints are imposed on the underlying assets. This approach achieves the dual objectives of ensuring prudential requirements while enhancing the convenience provided by stablecoin issuance. For example, trust-based stablecoins require the underlying assets to be backed by bank deposits that meet certain conditions, allowing withdrawals at any time. Furthermore, the amended PSA, scheduled to take effect in 2026, will remove the requirement that 50% of the trust assets be backed solely by deposits. However, this 50% portion will be limited to short-term government bonds with a maturity of three months. Summary The adoption and practical implementation of stable - coins in Japan are poised to bring a significant turn - ing point to fintech. Following the lead of pioneers like JPYC Inc, major banks and fintech companies are entering the space one after another. Meanwhile, Jap - anese regulators are focusing on laying the necessary foundations for stable operations and user protection. Further self-regulation and integration with other financial products are anticipated, potentially lead - ing to increased adoption of new fintech services. As stablecoin usage expands, more businesses and individuals will be able to enjoy the convenience and efficiency of these transactions. This transformation is
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