Japan will begin enforcing its crypto laws on May 1, 2020, which will provide clarity to the Japanese crypto sector. The Japanese House of Representatives passed regulations for the crypto sector in 2019. The legislators made amendments to the Payment Services Act and the Financial Instruments and Exchange Act. These amendments helped to tighten the government’s grip over the crypto sector, which had operated with little regulation for almost a decade.

Key Issues

Several key issues concern the crypto sector in the amendments passed in Japan’s parliament. The laws were supposed to come into force at the start of April 2020. However, a delay in the issuance of the official notice pushed the date to May 2020. According to the new law, crypto-asset margin trading, as well as all crypto-based derivatives trading, will be subject to Japanese law. While there are some grandfathering provisions in the amendments for six months, companies involved in derivatives trading will need to send a notification to the relevant authorities within two weeks once the law comes into force.

The amendments also expressly classify some cryptocurrencies as securities under Japanese law. Consequently, the issuance of some cryptocurrencies will require a careful review of Japanese laws regarding securities. Additionally, those offering custodial services in the Japanese crypto sector will need to acquire a license. Finally, the amendments make it clear that several prohibitions will be imposed on the crypto sector to prevent unfair trading practices.

Defining Crypto

According to the amendments, the term used to define digital assets in crypto assets, instead of virtual currencies. When enforced, ICOs and STOs will now have to obtain approval from various regulators in Japan. It is worth noting that the crypto derivatives market will now be regulated in Japan. Until now, the sector has remained mostly unregulated in and out of Japan. In general, this will help to eliminate fraudulent players from the industry.

Funds segregation, as is common on most forex brokers, will now be a legal requirement for businesses operating in Japan’s crypto sector. It will mean that a crypto business in Japan will need to acquire the services of a third party to handle deposits made by its customers. The law will require that crypto deposits by clients be held in cold wallets. For hot wallet services, a crypto exchange will need to match and hold a similar crypto asset in the amount. AS a result, if anything goes wrong, customers can be immediately compensated.

Japan began clamping down on the crypto sector after the Coincheck hack. It was one of the most prominent hacks of crypto exchanges in 2018. Since then, all crypto exchanges in Japan have been required to obtain a license from the nation’s FSA. Thus far, 23 crypto exchanges have been given the license to operate in Japan.

Japan Cautious About Crypto – But Highly Involved With Ripple 

While Japan has been cautious when it comes to the crypto sector, the nation has never banned crypto. Some of the largest businesses in Japan have even made it possible to pay in crypto. The country currently is considering launching a national digital currency in response to the Chinese CBDC. If you assess the banking sentiment in Japan, one cryptocurrency that sticks out is XRP. With the ongoing Ripple lawsuit over XRP being a security, it will be interesting to see the direction Japan takes with XRP. Last year, Japan labeled XRP as a “virtual currency” opposed to a security. Despite Japan being cautious in the crypto sector, a majority of the banks in the region are connected to Ripple in some form. This has been fueled by Japanese banking giant SBI, pushing for adoption across Japan. With the new laws coming to fruition, we will see if it can have any positive effect on popular cryptocurrencies in the region such as XRP.

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