Newsletter2019 AMENDMENTS TO
THE PAYMENT SERVICES ACT, ETC.

New Legislation for Crypto-assets and More

ATSUMI & SAKAITOKYO | LONDON | FRANKFURT
www.aplaw.jp/en

March 2019

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2019 Amendments to the Payment Services Act, etc.
- New Legislation for Crypto-assets and More On March 15, 2019, the Financial Services Agency of Japan (“FSA”) submitted to the Diet a bill 1 toamend the Payment Services Act, etc. in response to diversification of financial transactions
associated with the development of information communication technology. The laws that areproposed to be amended include the Payment Services Act (“PSA”), the Financial Instruments andExchange Act (“FIEA”) and other financial services laws. The main feature of the bill is the changeof the defined legal term from “virtual currencies” to “crypto-assets”, additional restrictions on
crypto-asset exchange and management services, the introduction of new regulatory framework for
margin trading and Initial Coin Offering (“ICO”). In this newsletter, we outline the proposed
amendments by the bill.
I.

From “Virtual Currencies” to “Crypto-assets”
In light of usage of “crypto-assets” by the G20, the name of the defined legal term will bechanged from “virtual currencies” to “crypto-assets”. The background of this change is thatmost of such assets do not function as money as the Basel Committee pointed out in its recent
newsletter 2.

II.

Proposed Amendment to the Payment Services Act regarding Crypto-assets

1.

New requirement to administer customers’ crypto-assets
There were two theft cases where customers’ crypto-assets kept in a hot wallet (online) by
crypto-assets exchange service providers were lost by hacking. To address the risks ofcrypto-assets leakages, additional requirements will be provided for exchange service providers:(i)

A crypto-assets exchange service provider will be required to separately hold and manage
users’ crypto-assets by a method less likely to lack user protection (e.g., in a cold wallet).
In addition, it will be required to hold crypto-assets of the same type and amount("Performance Bond Crypto-assets") as those of users that are managed by other methods(e.g., in a hot wallet) and separately manage them by a method less likely to lack userprotection; and(ii) A user who engages a crypto-assets exchange service provider to manage its crypto-assets
will have the right to repayment of its crypto-assets and Performance Bond Crypto-assets
managed by such crypto-assets exchange service provider in preference to other creditors.
2.

New regulations of advertising / promotions against crypto-asset exchange service providers
Advertisements and promotions that encourage speculative trading can be often seen on theinternet. The bill proposes that a crypto-assets exchange service provider will be prohibited1

https://www.fsa.go.jp/common/diet/index.html (only in Japanese)2Statement on crypto-assets (https://www.bis.org/publ/bcbs_nl21.htm)

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from making false statements in its advertisements and promotions and that regulations
regarding advertising of crypto-assets exchange services will be established.
3.

New Regulatory Framework of Custody Service Providers
Under the current PSA the administration of crypto-assets as a business in relation to acrypto-assets exchange is regulated, but custody service providers that exclusively manage
crypto-assets are not regulated. The Financial Action Task Force (FATF) recommends countries
to ensure that virtual asset service providers which includes a service provider of safekeeping
and/or administration of virtual assets or instruments be regulated for AML/CFT purposes, andlicensed or registered 3. In response to the FATF’s recommendation, custody service will beadded to the definition of crypto-assets exchange services so that the custody service providers
will be regulated by the AML/CFT regulations and required to be registered with the FSA.

III. Proposed Amendment to the Financial Instruments and Exchange Act regarding Crypto-assets
1.

New regulatory framework of margin trading using crypto-assets
Even though 80 percent of crypto-assets transactions in Japan are margin trading, there are no
regulations to restrict margin trading. As such, the bill proposes to establish regulations similar
to those for foreign-exchange margin trading (Forex trading) by amending FIEA. Proposed
amendments to FIEA include:(i)

Crypto-assets will be added to the definition of financial instruments, and thus derivatives
transactions using crypto-assets will become subject to regulations; and(ii) In terms of the services related to derivatives transactions using crypto-assets provided byfinancial instruments business operators, rules such as the obligation of accountability, etc.
will be provided.
2.

New regulatory framework of ICO tokens that grant rights to receive distribution of profits
To clarify the regulatory framework of ICOs, investment type ICOs will be regulated by thesecurities regulations (i.e., FIEA) and thus, as with stocks, a system of disclosure to investors andregulations of offering and solicitation will be established. Rights, etc. to receive distribution ofprofits that are indicated in property value (limited to those recorded on electronic devices orother objects by electronic means) that may be transferred using the electronic data processing
system (the "Rights to Transfer Electronically-Recorded Claims") will be deemed to be Paragraph(1) Securities (e.g., stocks), which will be subject to the system of disclosure of corporate affairs,etc. In addition, selling and purchasing the Rights to Transfer Electronically-Recorded Claims as
a business will become subject to the regulations pertaining to Type I Financial Instruments
Business (e.g., securities companies).

3

The FATF Recommendations updated October 2018(http://www.fatf-gafi.org/media/fatf/documents/recommendations/pdfs/FATF%20Recommendations%20201
2.pdf)

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Prohibition of unfair price manipulation of crypto-assets, etc.
It was reported that unfair activities are sometimes seen in crypto-assets transactions. As suchthe bill proposes to add provisions to prohibit improper conduct, spreading rumors and pricemanipulation in relation to crypto-assets transactions and derivatives transactions using
crypto-assets.

IV. Addition of the Services of Providing Customer Information to Third Parties to the Scope ofBusinesses of Financial Institutions
The scope of businesses that can be conducted by banks, financial instruments business
operators and insurance companies, etc. are restricted by the Banking Act, FIEA and theInsurance Business Act, etc. For the purposes of utilizing the information and data, the provisionof customer information to third parties with the consent of customers and provision of otherinformation in possession to third parties that will contribute to the sophistication of thefinancial service businesses or improvement of convenience of users will be added to theincidental services of banks, financial instruments business operators and insurance companies,etc.
V.

Proposed Amendment to the Insurance Business Act
Under the Insurance Business Act there are restrictions on the scope of businesses that can be
conducted by subsidiaries of insurance companies. To enable the subsidiaries to conduct
Fintech and Insurtech businesses fully, insurance companies will be allowed to acquire or hold,with authorization, in excess of the maximum threshold for voting rights held, the voting rights
of companies providing services that contribute or are expected to contribute to thesophistication of the insurance business using information and communication technology andother technologies or improve the convenience of users.
Once the bill passes both Diet’s chambers, these amendments will be effective one year after
the promulgation of the legislation which is expected to be sometime next year.

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For further information on these matters, please contact:
Yuri Suzuki
Attorney (Bengoshi), Japan
Partner, Atsumi & Sakai
E: yuri.suzuki@aplaw.jp

Takafumi Ochiai
Attorney (Bengoshi), Japan
Partner, Atsumi & Sakai
E: takafumi.ochiai@aplaw.jp

This memorandum was prepared by Japanese lawyers (Bengoshi) at Atsumi & Sakai and isprovided as a general guide only; it does not constitute, and should not be relied on as constituting
legal advice. Please see notice 2. below regarding any subsequent Japanese law advice.

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