Japan recently approved a bill to amend its Payment Services Act, effectively laying the ground for reshaping its crypto landscape. The country’s Financial Services Agency (FSA) issued a press release affirming that the Cabinet had endorsed the legislative move and passed it on to the National Diet, i.e. the national legislature of Japan, for deliberations on the same day.
Typically, the Diet has consistently approved crypto-related amendments as long as the Cabinet backs the bill, indicating a strong likelihood of the bill passing. A bill must receive a majority of the votes from the members of the Cabinet present during the meeting to pass the National Cabinet.
Once the National Cabinet passes the bill, officials forward it to the Diet, where members debate and amend it before introducing it to the full chamber. If both the House of Representatives and the House of Councilors approve the bill, they pass it on to the Emperor for a ceremonial declaration to formalize and eventually enact the bill as law.
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Key Provisions of the Reform Bill
The bill proposes a new category of businesses for cryptocurrency transactions – intermediary businesses. Earlier, regulators required businesses facilitating crypto trades to function as fully licensed exchanges. However, as per the reform bill, non-custodial businesses matching buyers and sellers without holding funds can now register as crypto brokers. Essentially, now, crypto brokerage firms would adhere to their company requirements and anti-money laundering (AML) policies. This move will lower the entry barrier for newer businesses and encourage more entities to offer crypto services in Japan.
Also, the bill has granted stablecoin issuers greater flexibility. Traditionally, regulators required stablecoin issuers in the country to back their tokens with a 1:1 ratio of cash deposits in regulated bank accounts. The amended bill now proposes that issuers can utilize certain Japanese and US government bonds with maturities of three months or less as collateral.
However, these collaterals can back no more than 50% of the stablecoin reserves. Issuers must maintain the remainder of the reserves in current accounts. This option allows stablecoin issuers greater flexibility in asset management while ensuring asset stability.
The bill also proposes that brokerage firms that don’t directly handle their clients’ funds can be excused of certain financial requirements and AML regulations.
Through this relaxation of rules, Japan is expecting to attract a lot more crypto brokerage businesses. Prominent companies like Mercari, SBI Securities and Monex Securities have already initiated their preparations to launch their own brokerage services in accordance with the proposed bill.
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Impact of the Bill on Japan’s Crypto Ecosystem
The new rules, as proposed by the bill, work to strengthen Japan’s position as a crypto hub. The country already has a strict crypto regulation regimen, and these new rules allow for additional reinforcement of their crypto framework.
Although the country has ridiculed the borderless nature of this asset class, Japan has recently strived to reform and join in on the growing global adoption of crypto.
The new amendment bill is expected to boost investment and encourage the development of new services for the Japanese crypto market. Market participants will be keenly observing the Diet discussions in anticipation of these reforms being officially adopted.
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Key Takeaways
- Japan allows non-custodial businesses to facilitate crypto trades without full exchange licenses.
- Stablecoin issuers can back tokens with government bonds, increasing financial flexibility..
- Certain financial and AML requirements lifted for brokerages not handling client funds directly.
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