Japan will use securities laws to regulate cryptocurrencies

Japan's Financial Services Agency (FSA) on Wednesday published a comprehensive report from the Financial System Council's working group, examining the regulatory status of cryptocurrencies across various sectors. The document outlines a plan to shift the legal framework for cryptocurrency regulation from the Payment Services Act (PSA) to the Financial Instruments and Exchange Act (FIEA), the primary law governing securities markets, issuance, trading, and disclosure.

The Need for Regulation

The report emphasizes that cryptoassets are increasingly being used as investment vehicles both domestically and internationally. This creates a need to protect users through regulation that treats cryptocurrency as a financial product.

Strengthening Disclosure Requirements

One of the key changes associated with the transfer of cryptocurrencies under the FIEA is stricter disclosure requirements for initial exchange offerings (IEOs), or token sales conducted by crypto exchanges.

>>>> "Cryptocurrency transactions by users are similar to securities transactions and may involve the sale of new cryptoassets or the purchase and sale of existing ones," the document states. <<<<

This highlights the importance of timely disclosure during an IEO.

New IEO Requirements

Among the IEO requirements is the obligation for exchanges to provide preliminary disclosure information, including details of key participants in the offering. Code audits by independent experts are also required, and it is recommended to consider feedback from self-regulatory organizations.

Issuer Responsibilities

In addition to exchanges, issuers also bear responsibility: they must disclose their identity, regardless of whether the project is decentralized, and also disclose how tokens are issued and distributed.

In Conclusion

The proposed system will give regulators more powerful tools to combat unregistered platforms, especially those that may pose a risk to investors. This is a step toward a more secure and transparent crypto industry in Japan, which could contribute to increased trust among users and investors.