JAPAN Law and Practice Contributed by: Ken Kawai, Shunsuke Aoki, Takeshi Nagase and Keisuke Hatano, Anderson Mori & Tomotsune
only for payments to the issuer for its goods or services, but also for payments to other parties designated by the issuer, will be required to reg - ister as an “issuer of PPIs” under the PSA. Regulation on Issuers of NFTs See 10.12 Non-Fungible Tokens (NFTs) . Regulation on Issuers of Digital Securities As mentioned in 6.2 Regulation of Different Asset Classes , the FIEA has conventionally classified securities into: • traditional securities such as shares and bonds (Paragraph 1 Securities); and • contractual rights such as trust beneficiary interests and collective investment scheme interests (Paragraph 2 Securities). Whereas Paragraph 1 Securities are subject to relatively stricter requirements in terms of disclo - sures 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 processing system such as blockchain, it is expected that such securities may have higher liquidity than securities issued using conventional methods – regardless of whether they are Paragraph 1 or Paragraph 2 Securities. For this reason, the FIEA introduced a new regulatory framework for securities that are transferable 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 elec - tronic data processing systems (Tokenised Paragraph 1 Securities); • contractual rights such as trust beneficiary interests and collective investment scheme
interests, which are conventionally catego - rised as Paragraph 2 Securities and are trans - ferable by using electronic 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 catego - rised as Paragraph 2 Securities and are trans - ferable 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 secu - rities registration statement (as is the case for traditional Paragraph 1 Securities) before mak - ing a public offering or secondary distribution, unless the offering or distribution 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 Paragraph 1 Securities or ERTRs is required to undergo reg - istration as a Type 1 FIBO. In light of the higher degree of freedom in designing Tokenised Par - agraph 1 Securities or ERTRs and the higher liquidity of these securities, a Type 1 FIBO that handles these digital securities will be required to control risks associated with digital networks such as blockchain used for digital 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 resi - dents. See 1.1 Evolution of the Fintech Market for more details on the regulations applicable to intermediaries of EPIs.
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