The top Japanese regulator, the Financial Services Agency (FSA), appears set to approve reforms to the way the country polices stablecoins and crypto brokerage businesses.
Per an official FSA notice and a report from the Japanese-language media outlet CoinPost, the regulator has “approved” a report from a working group tasked with making crypto legislation-related reform recommendations.
Crypto Brokerage Firms: Relaxed Regulations Readied?
Currently, Japanese crypto brokerages need to apply for the same type of virtual asset service provider (VASP) licenses as domestic crypto exchanges.
The headquarters of the Financial Services Agency in Tokyo, Japan. (Source: TBS News Dig Powered by JNN/YouTube)
The VASP application process is long, technically (and financially) demanding, and extremely rigorous.
This fact means few Japanese firms interested in running crypto brokerage services have even attempted to complete the application process.
However, critics claim that brokerages should not need full VASP permits, as they are mere “intermediaries,” and do not actually hold their clients’ crypto.
The working group’s proposals reflect these criticisms. It proposes the creation of “a new category” of “intermediary” crypto “businesses.”
This would mean that brokerages could expect new “streamlined” regulatory requirements and anti-money laundering protocols.
This would shift responsibility for user protection onto “exchanges and token issuers,” as well as crypto custody firms.
CoinPost wrote that this would likely “make it easier for a variety of players, such as gaming companies and wallet operators, to enter the market.”
Stablecoin Collateral Asset Rule Changes in Pipelines?
The working group also made stablecoin-related policy recommendations. It suggested that the FSA accept “short-term government bonds and certain fixed-term deposits” as collateral, in addition to conventional fiat deposits.
The USD Coin (USDC) market cap over the past 12 months. (Source: CoinMarketCap)
The body recommended “an upper limit of 50%” on the amount of bonds and fixed-term deposits stablecoin issuers could use as collateral.
This, the working group said, would help issuers “strike a balance between enhanced convenience and safety.”
The move could potentially allow stablecoin issuers more flexibility when “managing their funds across multiple financial products.”
This, in turn, could broaden stablecoin issuers’ horizons “in terms of profitability and liquidity.”
However, the body added that regulators may need “further mechanisms” to provide “adequate” guarantees for “user protection.”
User Protection Proposals
The body also made recommendations aimed at bolstering crypto exchange customer protection.
It said that “taking lessons from the collapse of FTX in 2022,” regulators should launch “mechanisms” that “prevent domestic users’ cryptoassets from being transferred overseas, even if an overseas parent company goes bankrupt.”
FTX Japan customers were forced to wait two years to withdraw their funds after the platform’s operator FTX declared bankruptcy in November 2022.
Japanese regulators vowed at the time to ensure a similar future bankruptcy would not leave domestic customers unable to access their funds.
Next Steps?
The FSA is now expected to formulate an official request for legal amendments to two key payment-related laws, the Trust Business Act and the Payment Services Act.
The working group has been discussing policy reform since August 2024. It was ordered to review regulations not only pertaining to crypto and stablecoins, but also to other “remittance and payment services.”
Japanese law currently classifies cryptoassets as digital payment tools. But Tokyo wants to change this, and reclassify Bitcoin (BTC) and other coins as investment-related assets.
The government appears equally keen to reform crypto legislation, amid accusations Tokyo has over-regulated the sector.
Some think this has led many of Japan’s top crypto, blockchain gaming, and web3 companies to relocate overseas.
The market cap of the USDT token over the past 12 months. (Source: CoinMarketCap)
The Japanese Finance Minister Katsunobu Kato recently spoke of “creating an environment” where citizens can “use highly convenient remittance and settlement services, while enjoying peace of mind.”
Many of Japan’s biggest business groups have begun rolling out stablecoin solutions in recent months, in addition to security token operations.
Some seem keen to replicate the success of USD-pegged stablecoins, which have seen adoption rates rocket worldwide since the start of the most recent crypto bull market.
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