FSA-licensed crypto exchange Huobi Japan has raised $4.6 million from Financial Products Group, a financial instruments business operator.
Licensed crypto exchange Huobi Japan has raised 5 million yen ($4.6 million) from Financial Products Group (FPG), a financial instruments business operator.
The development was revealed in a press release shared with Cointelegraph on Oct. 25.
Future cooperation on digitized securities
Huobi Japan is a wholly-owned subsidiary of major Singapore-based crypto exchange Huobi, which serves traders across over 130 countries.
The platform launched this January as a fully compliant entity after a merger with BitTrade — one of only 16 crypto exchanges at the time to have secured a license under the aegis of Japan’s national financial regulator, the Financial Services Agency (FSA).
According to today’s announcement, FPG and Huobi Japan will jointly focus on providing support for new financial assets and payment methods.
In addition, FPG Group says it anticipates a possible future collaboration with Huobi Japan to further the digitization of Japan’s securities market by combining its expertise as a financial instruments business operator with Huobi’s blockchain technology.
Japan’s exchange regulatory regime
A license has been mandatory for all crypto exchanges operating within Japan since the amendment of the country’s Payment Services Act back in April 2017. The FSA evolved increasingly strict requirements for license applicants in the wake of a major $532 million hack in January 2018 of local exchange Coincheck.
Coincheck went on to secure an FSA license in January of this year. Other regulator-approved exchanges include LVC Corporation — the digital asset- and blockchain-focused arm of Japanese messaging giant LINE — which was granted a license this September.
Founded in China in 2013, Huobi Group has been headquartered in Singapore since Beijing’s crackdown on domestic crypto-fiat exchanges in September 2017.
This August, New York-based blockchain infrastructure firm Elementus published research alleging that almost 50% of the total number of PlusToken withdrawals — an alleged crypto Ponzi scheme — were processed via the flagship Huobi platform.
Following G20 meetings, where Japan led several discussions regarding crypto assets, the country’s top financial regulator told news.Bitcoin.com that 110 crypto exchanges are now interested in launching in Japan. The country recently passed a new cryptocurrency bill, and some approved crypto trading platforms have undergone changes.
Under Japanese law, companies are required to register with the country’s top financial regulator, the Financial Services Agency (FSA), to operate crypto exchanges. There are currently 19 registrants operating in the country, 16 of which were approved in 2017 while three were approved this year. However, many more crypto exchange operators have expressed interest in entering the Japanese crypto space.
The FSA revealed to news.Bitcoin.com Monday that these businesses are in various stages of registration such as “preliminary consultation” and “inquiries regarding registration,” adding:
The number of crypto asset exchange service providers which have expressed their interest is about 110 as of June.
Among applicants waiting to be approved is Line Corporation, which owns Japan’s most popular mobile messaging app, Line. The company currently operates an exchange called Bitbox worldwide except in the U.S. and Japan due to regulation. On June 20, Bloomberg reported that the company is near obtaining approval from the FSA to offer its exchange service in Japan. However, there has been no announcement from the regulator regarding the company’s registration status.
19 Registered Crypto Exchanges
The FSA maintains a list of all registered crypto exchange operators in Japan following the country’s legalization of cryptocurrency as a means of payment in April 2017. The first 11 exchange operators were registered on Sept. 29, 2017 — Money Partners Group, Quoine, Bitflyer, Bitbank, SBI Virtual Currency, GMO Coin, Huobi Japan (formerly Bittrade), Btcbox, Bitpoint Japan, Fisco Cryptocurrency Exchange, and Tech Bureau. SBI Virtual Currency Co. Ltd. changed its name on July 1 to SBI VC Trade Co. Ltd.
On Dec. 1, 2017, DMM Bitcoin, Taotao (formerly Bitarg), Bitgate, and Xtheta were registered. Bitocean followed suit on Dec. 26. No operator was registered last year, largely due to the January hack of Coincheck, one of the country’s largest crypto exchanges. Since then, the FSA has tightened its oversight of the industry including conducting on-site inspections of exchanges.
This year, three exchanges have been approved so far. Coincheck successfully registered with the FSA on Jan. 11 after it was acquired by Monex Group. On March 25, Rakuten Wallet (formerly Everybody’s Bitcoin) and Decurret were also registered.
Bitflyer Resumes Account Openings
Bitflyer, one of Japan’s largest crypto exchanges by trading volume, resumed the opening of new accounts on July 3 after freezing the service for a year due to a business improvement order it received from the FSA.
The company wrote that it “voluntarily suspended new account creation in order to reconfirm the identity of our existing customers and strengthen our internal management structure,” adding that “We would like to announce that new account creation has resumed.”
Fisco Hit With Administrative Order
It had been almost a year since the FSA last issued a business improvement order to a crypto exchange. On June 21, the FSA announced an administrative order against Fisco Cryptocurrency Exchange, which acquired another registered cryptocurrency exchange, Zaif, after it was hacked in September last year. The last order prior to this latest one was issued on Sept. 25 last year to Tech Bureau, the former operator of Zaif.
The agency explained that it conducted an on-site inspection of the exchange on Feb. 13 and found that “management did not recognize the importance of legal compliance … this has led to a number of legal violations.” The FSA continued to detail: “there have been problems with the company’s business management system … [and] also problems in the risk management system for money laundering and terrorist financing, and the external management system such as outsourcing management system.”
The agency ordered the company to establish a number of additional systems including for legal compliance, risk management, outsourcing, handling new cryptocurrencies, protecting user information, and auditing. The company must submit its improvement plan by July 22 and follow up with monthly implementation progress reports.
Coincheck Now Supports 10 Cryptocurrencies
Coincheck applied for registration in 2017 but had been operating as a “deemed dealer” until its registration was finally approved in January. Deemed dealers are exchanges that had been operating in Japan since before the regulation took effect; the FSA has allowed them to continue service while their registration applications are being reviewed.
On Jan. 26, Coincheck was hacked and lost approximately 58 billion yen (~$550 million) worth of XEM held by approximately 260,000 customers. The exchange was subsequently acquired by Monex Group and underwent extensive system improvement. Coincheck halted some services following the hack and has gradually reopened them. The platform now supports the trading of BTC, ETH, ETC, LSK, FCT, XRP, XEM, LTC, BCH, and MONA. It started collaborating with Monex Securities in April to allow the exchange of Monex points for BTC, ETH, and XRP. Monex points are accumulated by purchasing and holding investments in Monex Investment Trusts.
FSA Warns of Unauthorized Exchanges
The FSA issued a warning on June 25 to Cielo EX Ltd., a crypto exchange that has been providing service to Japanese residents without authorization. This is the fourth warning the agency has issued since it started regulating the crypto industry. The platform has been providing exchange service for cryptocurrencies such as BTC and Asobi Coin (ABX).
The other three warnings went out to Gibraltar-based SB101 on Feb. 15, Binance in March last year, and Blockchain Laboratory Ltd. in February last year.
Commitment to Applying FATF Standards
Japan recently hosted the latest G20 summit and other G20 ministerial meetings such as the G20 Finance Ministers and Central Bank Governors Meetings. At the end of the G20 summit on June 29, Japan and other G20 countries jointly declared their commitments to applying the crypto standards set by the Financial Action Task Force (FATF). The country’s finance minister also joined other G20 finance ministers and central bank governors to declare the same commitment to applying FATF’s standards.
“Technological innovations, including those underlying crypto-assets, can deliver significant benefits to the financial system and the broader economy. While crypto-assets do not pose a threat to global financial stability at this point, we remain vigilant to risks, including those related to consumer and investor protection, anti-money laundering (AML) and countering the financing of terrorism (CFT),” the G20 leaders, finance ministers and central bank governors declared. “We reaffirm our commitment to applying the recently amended FATF Standards to virtual assets and related providers for AML and CFT.”
Japan’s New Crypto Bill Passed
A new cryptocurrency bill, published on June 7, officially passed Japan’s House of Representatives, the lower house of the National Diet, on May 21. It then passed the House of Councillors, the upper house of the Diet, on May 31.
The bill entitled “A draft bill to amend some of the fund settlement laws, etc., in response to the diversification of financial transactions accompanying the advancement of information and communication technology” was prepared by the FSA. It seeks to amend two key laws that apply to crypto assets: the Act on Fund Settlement and the Financial Instruments and Exchange Act.
The revised bill was accompanied by a resolution of 15 requests which “require the government to clarify regulatory targets, deploy appropriate personnel, implement appropriate regulations in line with the international standards, consider appropriate taxation methods, etc.,” Impress publication detailed. The FSA told news.Bitcoin.com Monday, “We are currently undergoing an extensive personnel reshuffling.”
The agency previously explained that the 15 requests are “items which we should take into consideration before introducing the bill, and we should take appropriate responses to it at the time when the bill comes into effect.”
Further, the FSA announced last month a partial revision of its operating guidelines including a business management system required for crypto exchange operators. The document also updates supervision for initial coin offerings, including when the issuers sell their own tokens and when tokens are sold on behalf of the issuers.
Do you think Japan needs more crypto exchanges? Let us know in the comments section below.
Images courtesy of Shutterstock and the Japanese government.
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Japan’s financial regulator, the Financial Service Agency, has issued a business improvement order to Japanese investment firm and Zaif crypto exchange operator Fisco.
Japan’s financial regulator, the Financial Service Agency (FSA), has issued a business improvement order to Japanese investment firm and Zaif crypto exchange operator Fisco.
According to Cointelegraph Japan, the FSA has identified shortcomings in Fisco’s internal control systems — such as anti-money laundering measures — and found it to be insufficiently compliant with local laws and regulations.
The FSA’s action has reportedly been taken under the provisions of the country’s Act on Settlement of Funds.
The regulator said Fisco’s management failed to recognize the importance of legal compliance, and ordered it to improve risk management systems. It must also establish more robust internal management, outsourcing, accounting, and auditing.
Moreover, the FSA has reportedly identified shortcomings in the platform’s customer verification systems, noting that:
“In the section where users can enter identity verification information, they can select “other” if it is not possible to check their occupation or purpose of the transaction. When “other” is selected, the account can be opened without entering anything.”
As Cointelegraph Japan reports, twelve of the nineteen crypto exchange businesses registered for on-site FSA inspections have now been completed. Of the remaining seven, up to four have reportedly not yet launched. The remaining await a survey by the regulator.
This April, Cointelegraph cited unconfirmed reports that the FSA had conducted investigations into both Fisco and Huobi Japan — the local off-shoot of China-born exchange Huobi — to check their customer protection and legal compliance.
This May, the Japanese House of Representatives officially approved a new bill to amend the national laws governing cryptoregulation — specifically the Act on Settlement of Funds and the Financial Instruments and Exchange Act.
The revised acts aimed to protect users by means of regulating crypto derivatives trading and improving exchange security standards are expected to go into effect April 2020.
LVC Corporation is allegedly close to obtaining an FSA-issued crypto exchange operating license.
LVC Corporation, the digital asset- and blockchain-focused arm of Japanese messaging giant Line, is allegedly close to obtaining a crypto exchange operating license from Japan’s financial regulator. The news was reported by Cointelegraph Japan on June 20.
According to the report, Japan’s Financial Services Agency (FSA) could issue the company with an exchange license as early as this month.
The trading service, to be dubbed BitMax, would enable Line’s 80 million users in Japan to buy and sell multiple major cryptocurrencies, as well as Line’s native token Link, CT Japan notes.
Per a press release recently shared with Cointelegraph, Line counts 187 million global users monthly, with an estimated 50 million users registered its mobile payment service, Line Pay.
BitMax will reportedly use the same back-end infrastructure as the Singapore-based, global user-focused crypto exchange BitBox, which was launched by Line in July 2018.
BitBox notably remains inaccessible for Japanese users given the country’s exchange license requirements. The license has been mandatory for all crypto exchanges operating within Japan since the amendment of the country’s Payment Services Act back in April 2017, and the FSA has since then continued to ratchet up requirements for applicants.
A report from local English-language newspaper The Japan Times has today contextualized Line’s accelerating foray into cryptocurrencies and blockchain against a backdrop of sluggish user growth which has ostensibly driven the firm’s shares to their lowest since listing in 2016.
Meanwhile, the firm awaits a banking license that would authorize deeper integration of cryptocurrencies with its other services, including e-commerce, The Japan Times notes, but it is allegedly only likely to be issued in 2020.
As previously reported, Line rolled out its Link cryptocurrency in late summer 2018, and has continued to develop its token ecosystem based on the firm’s in-house service-oriented blockchain, Link Chain. The blockchain network also enables decentralized applications to be directly applied to Line’s messaging platform.
Earlier this month, Line partnered with Americanpayment services firm Visa on new blockchain and digital payments solutions.
American social media behemoth Facebook has meanwhile this week unveiled its white paper for its libra cryptocurrency, which would — according to earlier reports — prospectively be used by the 2.7 billion monthly users of WhatsApp, Messenger and Instagram.
Japan’s Consumer Affairs Agency (CAA) has released its 2019 report and noted a significant spike in inquiries concerning cryptocurrency related issues last year. The report details a 70% increase in 2018 in regard to consumer queries largely stemming from exchange issues. Moreover, over the last two quarters of 2019, the Japanese yen paired with various cryptocurrencies like BCH and BTC has been climbing steadily, showing the country has a lot of demand for digital assets.
CAA Report: Crypto-Related Inquiries Spike by 70% in 2018
Over the last few years, Japan has been a hotbed for cryptocurrency innovation. Things really started heating up after Japan’s Financial Services Agency (FSA) officially announced that Bitcoin was recognized as a legal method of payment on April 1, 2017. Since then, there have been lots of crypto-related business developments, regulations formed, and crypto exchanges launched in the Pacific island nation. This week Japan’s Consumer Affairs Agency (CAA) published its 2019 consumer affairs report which touches upon inquiries and complaints surrounding the digital asset industry.
The latest CAA report has not yet been fully translated by the agency, but rough translations reveal that in 2018 there were roughly 3,657 cases that were tethered to cryptocurrency exchange complaints. The number represents a 70% increase in contrast to the prior year when there were 2,166 queries and complaints involved with digital currencies. The CAA has seen a consistent increase in queries since 2014. For instance, the number surpassed the previous year by 3.5X and 1.7X more than the year prior. Lots of complaints and queries derived from exchange customers who had issues receiving funds after paying and other complaints described user-side hacks. Other inquiries asked the CAA about digital assets in general and the credibility and reputation of certain exchanges.
Despite Increasing Crypto Regulation, Digital Assets Continue to Trend in Japan
In addition to this news, a recent study from the Block’s Larry Cermak has shown that behind U.S. exchange visitors, Japan leads with the world’s second highest traffic to worldwide exchanges. According to Cermak’s data, the U.S. accounted for 24.5% of exchange traffic while Japanese visitors made up around 10% of the traffic visiting crypto trading platforms. The trend has continued to rise in Japan despite the regulatory climate changing in the country on a regular basis. Japan recently passed a new cryptocurrency bill which addresses transferring crypto assets, income taxes, and income related transactions using digital currencies. A spokesperson from the FSA described the new bill to news.Bitcoin.com in May. Moreover, on June 28-29, Osaka Japan will be hosting the V20 summit which will see well-known crypto businesses debate the proposed FATF international standards.
Despite all the regulation and FATF standards looming, the Japanese yen has increased significantly when it comes to the global money flow into digital assets. In 2017, the yen (JPY) was a top pair with cryptocurrencies like bitcoin core (BTC) throughout the crypto bull run. However, in 2018 the JPY against crypto pairs like BCH and BTC dropped significantly as regulation spiked in the country and Coincheck exchange was hacked. In the first six months of 2019 things have changed drastically and the Japanese yen has gradually muscled its way into the top five currency pairs against BTC and BCH.
Today JPY captures 4-5% of the global BTC trade volumes worldwide and 1-1.5% of bitcoin cash global trade volumes. This is a significant amount of volume comparatively seeing how most global crypto trade volumes are dominated by tether (USDT). The 70% increase in crypto-related queries reported by the CAA shows the trend in crypto interest continues to grow in Japan.
What do you think about the recent increase in consumer inquiries toward cryptocurrencies and exchanges with Japan’s Consumer Affairs Agency? Let us know what you think about this subject in the comments section below.
Image credits: Shutterstock, Coinlib.io, Crypto Compare, and the Consumer Affairs Agency Japan.
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Back in April 2018, it was revealed that Yahoo Japan was planning to launch a cryptocurrency exchange licensed by Japan’s Financial Services Agency (FSA). Now, a year later, Yahoo Japan’s trading platform Taotao is open offering BTC and ETH trading while also providing users with margin trading available in litecoin (LTC), ripple (XRP) and bitcoin cash (BCH).
Yahoo Japan Corporation has officially entered the cryptocurrency trading industry with its newly launched exchange Taotao. Yahoo Japan is an internet company tethered to the American multimedia corporation Yahoo. The web portal operated by Yahoo Japan is the most visited website in the country, offering services like email, Roku, Gyao, Geocities, auctions, shopping, and travel. The company’s exchange was initially called Bitarg up until Yahoo Japan acquired the trading platform last February and renamed it Taotao. The trading platform is fully licensed with the FSA as a Japanese virtual currency exchange business association type 1 member.
Taotao President, Shinichiro Arakawa, announced the launch of the platform on May 30, 2019, with an initial commemoration campaign that gives traders zero fees for 30 days. Additionally, for BTC, ETH, BCH, XRP, and LTC margin trading, the open position management fees from leverage transactions are waived for the first month. Taotao launched the web portal with its slogan “New money, new world,” and the company believes Taotao makes it easier for cryptocurrency users to trade in a safe manner. The Taotao trading platform can be used in a browser but the exchange also offers a mobile trading experience with its Android and iOS applications. Users can trade with BTC and ETH in a traditional spot market fashion with their smartphone while also playing with leverage on LTC, XRP, and BCH.
The Yahoo Japan-backed Taotao claims to offer top-notch trading in a completely isolated environment from the external networks. Funds are kept in cold storage and Taotao also offers multi-signature technology which requires the approval from multiple individuals at the time of withdrawal. In order to prevent unauthorized logins, Taotao requires two-factor authentication (2FA) for accounts. One interesting thing to note about registering for Taotao is users can sign up with a Yahoo Japan ID to make the process much quicker. Still, in order to be fully verified, users are required to provide a photo ID in order to obtain approval. After the Coincheck breach in January 2018, Japanese exchanges have to abide by strict rules in order to acquire a license to operate a virtual currency trading platform. Yahoo Japan’s Taotao platform is among 19 FSA approved cryptocurrency exchanges within the country.
Crypto Exchange Competition in Japan Is Growing
Yahoo Japan’s entry into the cryptocurrency trading environment will surely help give digital assets further mainstream attention. There have already been advertisements on Yahoo Japan’s web portal when the company announced the pre-registration account openings for March 25 and gave up to 11,000 yen in reimbursements for advance registrations.
Taotao will compete with a slew of trading platforms and the Japanese forerunner Bitflyer, one of the world’s leading digital asset exchanges by volume. For instance, on Monday, June 10, Bitflyer has processed over $58 million or 7,315 BTC worth of trade volume in the last 24 hours. Moreover, last April news.Bitcoin.com also reported on a few other Japanese exchange newcomers that will compete against Taotao.
One of those examples is the Fisco Cryptocurrency Exchange, which initiated services in Japan during the last week of April. Fisco Digital Asset Group (FDAG) previously worked with Tech Bureau Inc., the firm which operated the hacked exchange Zaif, and FDAG decided to relaunch services seven months later. Then there’s the recent opening of Huobi Japan last January, which introduced LTC, BCH, MONA, BTC, ETH, and XRP trading to Japanese traders. Huobi Group managed a merger with Bittrade and rebranded into Huobi Japan after acquiring a license to operate under the FSA’s stricter guidelines. Taotao will also be challenged by the new platform Decurret and the revamped Rakuten service in Japan.
What do you think about the Yahoo Japan-backed Taotao exchange? Do you think this platform will introduce cryptocurrencies to mainstream audiences in Japan? Let us know what you think about this subject in the comments section below.
Image credits: Shutterstock, Yahoo Japan, Taotao, and Pixabay.
While Japan’s new laws are welcoming for most crypto exchanges, as they expect more institutional investors, custodians and wallet makers are getting worried.
On May 31, the Japanese House of Representatives amended two cryptocurrency-related laws, the Payment Services Act and the Financial Instruments and Exchange Act, which will come into effect in April 2020.
Most Japanese crypto exchanges have welcomed the changes, since they expect more institutional investors to join the crypto industry. However, others voiced their concerns that the changes may bring some uncertainty to custodians and wallet service providers.
The two documents outline several specific changes, which can be discussed separately.
The Payment Services Act (PSA)
Virtual currency to crypto assets
The new law revises the term “Virtual Currency” and says that “Crypto Asset” would be a better term to use to describe cryptocurrencies. The change was made since “crypto assets” is used more frequently at international meetings, such as the G-20. Meanwhile, the use of “virtual currency” may mislead the public into thinking that cryptocurrencies function or hold the same status that is associated with fiat currencies. This change, however, is not compulsory for implementation by exchanges and the media.
Tighter restrictions on custodian services
According to the documents, custodian service providers will now have to share the same level of accountablility for the risks as exchanges, such as the leakage of users’ crypto assets and money laundering/terrorism financing. So, custodians will need to be registered with the Financial Services Agency (FSA) even if they don’t provide crypto exchange or trading services.
As of now, there are no specific guidelines for cases that are not clear cut. However, the governing bodies are likely to release further information to clarify the situation.
Exchanges must change how they store crypto
From April 2020 onward, crypto exchanges operating in Japan will have to manage users’ money separately from their own cash flows. This means finding a third-party operator to keep hold of the users’ money (this can be a trust company or any other similar entity).
When managing users’ money, “reliable methods” will have to be used, such as a cold wallet. If the exchanges manage users’ stored cryptocurrencies in other ways, such as a hot wallet system, they have to hold “the same kind and the same quantities of crypto assets” as the users’ crypto assets. This would enable the exchange to reimburse users if the funds get stolen from the platform.
The revised laws still do not directly regulate anonymous cryptocurrencies or privacy coins such as monero and zcash. On March 15, the FSA said it would deal with problematic crypto assets that are easily used for money laundering because their transaction records are not traceable. Back then, the agency dubbed the anonymous coins as “problematic crypto assets.” However inclusion of anonymous coins in the bill eased the speculations regarding whether the FSA is indeed planning to regulate this area of the crypto sphere. Also, a recent report highlighted that money laundering in Japan is on the rise.
As Cointelegraph reported earlier, in May 2019, Japan has been working on some time to combat money laundering through anonymous coins and imposed inspections upon exchanges that offered these coins for trade to their user base.
The Financial Instruments and Exchange Act (FIEA)
Revised FIEA documentation introduced the concept of electronically recorded transferable rights (ERTRs) to define that initial coin offerings (ICOs) and security token offerings (STOs) are regulated under the FIEA. ERTRs refer to tokens issued in the expectations of profits (i.e., security tokens).
More specifically, tokens issued under STOs can constitute ERTRs if the three requirements below are met, according to Japanese law firm Anderson Mori & Tomotsune:
“(i) Investors (i.e., right holders) invest or contribute cash or other assets to a business,
(ii) the cash or other assets contributed by investors are invested in the business, and
(iii) investors have the right to receive dividends of profits or assets generated from investments in the business.“
Notably, while ERTRs will be regulated under the FIEA, they are excluded from using the official term “crypto assets,” as per PSA guidelines.
From April 2020 onward, crypto asset derivatives transactions will be regulated under the FIEA. The law doesn’t specify margin rates, although the Japan Virtual Currency Exchange Association (JVCEA), a major self-regulatory organization in Japan, has a guideline that proposes to restrict margin rates by four times or even lower.
The Anderson Mori & Tomotsune report says that the JVCEA’s guidance “may be taken into account when specific provisions are promulgated by the relevant Cabinet Office Order.” It then goes on to suggest that the exact level may be decided upon in the future:
“Cabinet office orders determine how laws will be enforced in reality and something the Japanese crypto industry pays careful attention to after the amendment of the two laws on May 31st.”
Introducing a clear regulation on derivatives transactions may be urgent, since 80% of crypto trades comes from derivatives, and yet it is largely unregulated. Data from the Japan Virtual Currency Exchange Association (JVCEA) shows that the volume of leveraged, margin and futures trading for crypto was far higher than that of spot trading in Japan from April 2017 to March 2018.
The FIEA prohibits anyone from engaging in activities such as dissemination of rumors, usage of fraudulent means for purposes of selling or purchasing or engagement in any transaction in respect to crypto assets or for purposes of engagement in any crypto asset derivative transactions and the likes.
Anderson Mori & Tomotsune has set out the possible areas that may constitute a breach of law by the governing body:
“(i) engage in fake sales and purchases; (ii) engage in collusive sales and purchases;
(iii) entrust or accept any entrustment of fake sales and purchases or collusive sales and purchases;
(iv) engage in market manipulation through actual sales and purchases;
Or (v) engage in market manipulation through representations and certain similar acts”
Market reaction is mixed
“Japan is leading the crypto regulation”
Most Japanese crypto exchanges that Cointelegraph Japan contacted have spoken positively about the new laws.
Katsuya Konno, head of the CEO office of fintech company Quoine, welcomes the changes and thinks that the revised laws will enhance customer protections and encourage more institutional investors to enter the crypto industry. According to a translation of his comments, he told Cointelegraph:
“I think it’s great, frankly. With the revised content, customer protection is further pursued, so I think that Japan will be able to become a world leader in virtual currency-related regulations, and the entry of institutional investors will also increase. As new initiatives such as STO are becoming possible, the boundaries between virtual currency and existing finance may be overlapping more and more.”
As reported, Quoine’s trading platform, Liquid, hit unicorn status with over a $1 billion valuation in April 2019.
BitPoint, another crypto exchange in Japan, has also praised the new laws. The exchange’s spokesperson told Cointelegraph, in translation:
“We are very positive. Clear rules are expected to help institutional investors enter, leading to market expansion.”
BitPoint also expects more institutional investors to join the crypto movement and the market to expand further as crypto rules become clearer. However, the exchange has admitted that a review of the wallet management system will need to be undertaken in order to strike the right balance between security that entails the use of cold wallets and more user friendly, but less secure, hot wallets. BitPoint will therefore look to entrust fiat currencies to a trust company and receive a financial instruments business operator’s license.
Meanwhile, Coincheck, which just obtained an exchange license from the FSA in January, wrote in a translated email that the new laws are something it expected, also adding:
“By clarifying the target and standards of regulation through the current legal reform, we believe that it will lead to the healthy development of the cryptocurrency industry. On the other hand, there is also concern that the term change to crypto assets may be a setback for cryptocurrency as a means of payment. I would like to make an effort as an industry to make that not happen.”
The exchange has also said it would be closely monitoring the cabinet office orders that determine how the laws will be enforced in reality.
Ambiguity for wallet makers
AndGo, a Japanese-made hardware and mobile wallet development company, outlined some “ambiguity” in the new laws when speaking to Cointelegraph Japan.
AndGo points out that there are two kinds of wallet makers. One is able to move clients’ assets. It will be viewed as a custodian wallet and required to be registered with the FSA, as in the case of exchanges. The other type doesn’t possess clients’ private keys, hence can’t move clients’ assets. The new law doesn’t apply for the latter type.
As AndGo explained the issue, its wallet is of the second type, so it should not be subject to the new laws. However, the laws are unclear about the cases in which it holds one of the private keys (as with multi-sig) and a private key that clients encrypts by setting up their own passwords. In those cases, wallet makers cannot move clients’ assets solely by their own volition. According to a translation of a correspondence with AndGo:
“The details and interpretation of this regulation are often vague, and I think that wallet operators will have to ask the FSA individually about gray areas in the future.”
However, AndGo understands that regulators don’t often catch up with the rapid pace of technological innovation, writing:
“While entrepreneurs develop their service products by looking years ahead, regulators focus on technologies and services that were released years ago.”
After attempting to get ahead with crypto regulation, Japan witnessed two major hacks in 2018. Protecting crypto customers and investors has become a priority, and those who have enough funds to comply with the regulation may be at an advantage. In contrast, it may become harder for crypto entrepreneurs to enter the industry. The FSA, in the comment to Cointelegraph Japan (translated into English), addressed some of the concerns, however:
“We think the balance between customer protection and innovation is important. We continue to prioritize customer protection and other regulations where appropriate, while making sure that they will not be too much for the industry to grow further.“
Ahead of the enforcement day, the FSA is going to release government orders including a Cabinet Office Ordinance, which determines how the law will be enforced. At the same time, it will seek public comments on its website regarding the orders, one month before the implementation. It is not yet clear what the FSA will include in the government orders, but one of them is expected to be about the rate of margin trading.
Moreover, according to the FSA, many elements of Japan’s new laws are included in the recently published IOSCO’s document, which will be used in the upcoming G-20 meeting in a discussion surrounding crypto regulation. The FSA hopes to “share Japanese experiences with G20 members and deepen the mutual understanding.”
The Japanese Financial Services Agency showed a cautious approach towards cryptocurrency-based ETFs.
The Japanese Financial Services Agency (FSA) showed a cautious approach towards cryptocurrency-based exchange-traded funds (ETFs) in comments at the finance committee of the upper house of the National Diet on May 30. Cointelegraph Japan reported on the comments earlier today.
Per the report, local politician Takeshi Fujimaki noted during the meeting that he expects a crypto-based ETF to be approved in the United States, citing both positive and negative statements released by United States Securities and Exchange Commission commissioner Hester Peirce. He then noted that such a product would be an important development and that Japan should not be left behind other countries in this regard.
Fujimaki also reportedly addressed hacking, stating that — in the case of ETFs — crypto assets would be entrusted to banks and kept by custodians. Furthermore, he claimed that the introduction of such an asset would result in growth for the market by making institutional investment easier, resulting in lower volatility.
However, an FSA representative reportedly showed opposing views during the meeting, claiming that cryptocurrencies such as bitcoin (BTC) lack intrinsic value, which could result in unbearable price volatility. Fujimaki answered, reiterating his idea that an ETF would diminish the volatility of cryptocurrencies and make it easier to invest in an asset that he deems desirable and necessary.
Japan’s House of Representatives has passed a new cryptocurrency bill with additional requests for the government to incorporate into law. News.Bitcoin.com talked to Japan’s top financial regulator to find out the implications of this bill and the proposed resolution.
A new cryptocurrency bill officially passed Japan’s House of Representatives, the lower house of the National Diet, on May 21. It was subsequently accepted by the House of Councillors, the upper house of the Diet, the following day. According to the Japanese government’s website, there were many opinions on the bill.
A spokesperson for Japan’s top financial regulator, the Financial Services Agency (FSA), told news.Bitcoin.com:
The passing of the bill depends on the deliberation process in the Diet.
The bill, officially entitled “A draft bill to amend some of the fund settlement laws, etc., in response to the diversification of financial transactions accompanying the advancement of information and communication technology,” was prepared by the FSA. It was submitted by the cabinet and accepted by the House of Representatives on March 15.
The bill seeks to amend two key laws that apply to crypto assets: the Act on Fund Settlement and the Financial Instruments and Exchange Act. The FSA revealed to reporters at a briefing session in March that the bill is expected to be enacted and finalized in the Diet by June 2020.
The revised bill passed by the House of Representatives was accompanied by a resolution of 15 requests which “require the government to clarify regulatory targets, deploy appropriate personnel, implement appropriate regulations in line with the international standards, consider appropriate taxation methods, etc.,” Impress publication reported.
The FSA clarified to news.Bitcoin.com:
The additional resolution (15 proposed items) is items which we should take into consideration before introducing the bill, and we should take appropriate responses to it at the time when the bill comes into effect.
Among the items the House of Representatives asked the FSA to consider is to “Establish an effective inspection and supervision system from the viewpoint of user protection, etc. based on the current situation of crypto assets and [initial coin offering] ICO transactions in recent years.”
Several other items require the regulator to examine actual situations and take measures based on results including constructing a system that is feasible and consistent with the regulatory trends of the G20 and international standards such as anti-money laundering measures. In addition to making efforts to fully cooperate with self-regulatory organizations, one of the 15 items requests the FSA to:
Review the transfer of crypto assets and the right to transfer electronic records, taxation of income tax, etc. on income related to transactions using crypto assets, and take necessary measures based on the results.
Moreover, the FSA was asked to “Take care not to unduly limit … the development and application of these technologies” when developing and deploying regulations including carrying out inspections and imposing measures. Crypto assets and their underlying technologies “may contribute to the advancement of Japan’s industry,” the resolution details.
Policies regarding ICOs were also discussed, particularly the need for the government to formulate guidelines and take appropriate measures while considering international discussions. Given the diversity of ICO participants and types of issues, the agency was asked to avoid “excessive regulation, and respond appropriately as necessary.”
Effects on Crypto Exchanges
The FSA also explained how the amendments will affect crypto exchange operators. Currently, there are 19 approved crypto exchanges in Japan, and over 140 companies have expressed interest in entering the country’s crypto space.
The regulator shared with news.Bitcoin.com:
The registered crypto-assets broker dealers need neither re-register nor be requalified. Needless to say, however, they are required to develop the system to comply with the obligation newly introduced by this revised Act. We are going to keep on monitoring the situation for maintaining their system on a continual basis.
Key Areas Addressed by the Bill
The bill incorporates many suggestions from the study group meetings conducted by the FSA. Impress publication summarized, “In addition to changing the name virtual currency to ‘crypto assets,’ the amendments also require that crypto assets be managed using a cold wallet, etc.” Further, the bill grants ICOs “the right to receive revenue distribution.”
Since there have been some major cases in Japan where hot wallets were hacked and cryptocurrencies held in them stolen, the bill requires customers’ crypto assets to be stored in reliable cold wallets. For crypto assets held in hot wallets, equivalent amounts must be stored separately, backed by other payment sources.
In response to excessive advertising and solicitation by several crypto exchanges, the regulator will “establish advertising and solicitation restrictions such as the prohibition of false labeling and hype, and the prohibition of advertisements and solicitations that encourage speculation,” the publication described. It further notes:
Regarding crypto assets with high anonymity … change of crypto assets handled by virtual currency exchange operators shall be notified [to the FSA] in advance and checked for problems.
In an exclusive interview with news.Bitcoin.com, the FSA emphasized that all approved crypto exchanges have to declare what cryptocurrencies they will handle at the time of their application. “When a crypto-asset broker-dealer wants to add more crypto-assets or to change old ones into new ones to be traded on its platform, it is required to notify that in advance,” the agency confirmed.
The bill also stresses the importance of collaboration with self-regulatory organizations. So far, only one has been approved. Margin trading, which accounts for about 80% of domestic crypto asset trades in Japan, will be regulated under the Financial Instruments and Exchange Act. Sales and solicitation restrictions will be in line with foreign exchange margin transactions. Furthermore, the law prohibits unfair acts, including price manipulation, and stipulates that a provision will be put in place to give priority to the return of customers’ crypto assets held by exchanges.
What do you think of Japan’s crypto regulatory progress? Let us know in the comments section below.
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Notably, the new trading platform is heavily backed by Yahoo Japan, marking the local internet giant’s arrival into the field of crypto. The timing seems to be on point, now that the market has finally shaken off the bear. But how likely is Taotao to dethrone its competitors — both current and those to come — in a complex market such as Japan?
What is Taotao, and how exactly is Yahoo involved?
The Yahoo Japan-backed platform was first mentioned in March 2018, when local newspaper Nikkei Asian Review reported on the corporation’s plan to acquire 40% of BitARG, a Tokyo-based cryptocurrency exchange, and to subsequently launch its own full-fledged platform “in April 2019 or later.”
Reportedly, the purchase of BitARG shares would be made through Tokyo’s YJFX, a retail foreign exchange broker wholly owned by Yahoo Japan, Nikkei revealed. Yahoo Japan, in turn, is a joint venture run by American internet company Yahoo and Japanese holding company SoftBank. It is reportedly the largest internet provider and payment processor in the country, which surpasses Google and PayPal in the respective fields.
Initially, BitARG denied such a deal was taking place, but the acquisition was soon confirmed both by Yahoo Japan and BitARG. According to differentreports, the 40% stake cost the internet corporation between 2 and 3 billion yen (around $19-27 million).
As per Nikkei, YJFX senior managers and engineers were sent to BitARG in April 2018. Their mission was reportedly to develop the new exchange system and work “on a corporate governance structure, a customer management system and internal controls.” The new exchange was expected to be “newly built but based on BitARG’s system,” the media outlet clarified.
Starting from March 2019, prospective users could sign up for a Taotao account and participate in a promotional giveaway scheme. The platform had originally planned its debut in mid-May but then postponed the launch at the last minute without explaining the reason.
The exchange will be open for Japan-based clients only. It is not clear whether it ever intends to expand to other countries. Cointelgraph reached out to Taotao for further comment, but the company has not produced a statement as of press time.
The FSA license is already in place — and Taotao is ready to trade
Notably, BitARG had been cleared to serve in the Japanese market at the time it was purchased by YJFX. The exchange secured its license with the Financial Services Agency (FSA) — the national financial regulator — back in December 2017, meaning that Taotao automatically obtained the permission to trade cryptocurrencies.
“It’s not so much entering the market but re-entering it, using the marketing expertise and financial muscle of Yahoo Japan,” as Maurizio Raffone, founder and CEO of Finetiq Limited, a Tokyo-based management consulting company, explained to Cointelegraph.
As per Japan’s Payment Services Act, amended in April 2017, all digital currency exchanges in the country are required to be registered with the FSA. The agency has granted the most compliant players with licenses.
It seems safe to assume that Taotao took the easy path to the local market — the FSA is known to have a tight grip on crypto exchanges operating on Japanese soil, and securing a license from scratch is a lengthy and complicated process. In fact, as many as 190 new exchanges were reportedly pending the agency’s approval to enter the market in December 2018.
In the wake of these security breaches, the watchdog has been taking numerous precautions, including on-site inspections of exchanges’ offices and mandatory risk management system reports. Most recently, the FSA was reported to be in the midst of a crack down on crypto exchanges that offer anonymous transactions or have weak identity verification practices in preparation for inspection by the Financial Action Task Force (FATF) this fall.
Despite already having a license, Taotao should still keep in mind the FSA’s firm requirements, Raffone told Cointelegraph:
“The FSA’s requirements for crypto exchanges are becoming more and more stringent and over time one can expect them to converge with the high standards of the traditional securities industry. Having said that, with the rising costs of compliance and cybersecurity eating away at crypto exchanges’ profitability, the business model architecture for Taotao would need to have suitable margins to ensure its sustainability.”
Notably, the watchdog’s tough supervision has prompted some major players to quit the Japanese market. For instance, Binance, one of the world’s largest crypto exchanges that had once opened its office in the country, turned to Malta — the famously crypto-friendly state — after the Japanese regulator had slapped it with a warning in March 2018. Similarly, local social messaging app Line has also decided to exclude the domestic market prior to the launch of its cryptocurrency exchange, citing local regulatory difficulties.
As of now, the majority stake (60%) in Taotao still belongs to CMD Lab, BitARG’s parent company, which had wholly owned the exchange prior to the deal with YJFX. Neither company has responded to Cointelegraph’s requests for comment.
Additionally, Taotao is a member of Japan Virtual Currency Exchange Association (JVCEA), a self-regulatory body comprised of domestic industry participants.
Taotao picks best time to enter the market — but harsh competition awaits
Notably, Taotao seems to be entering the market in the midst of reignited interest from Japanese cryptocurrency holders. As Cointelegraph Japan reported earlier last week, local digital asset exchanges have seen new account openings increase up to 200% in the past two months. More specifically, data obtained from three large trading platforms — Bitpoint, DMM Bitcoin and Coincheck — showed a major increase in interest from entry-level investors since the end of March.
The change in habits among those who presumably did not use cryptocurrency before indicates the impact of rallying prices on public interest, which rose with the return of a bull market.
“Given the positive momentum in crypto prices following the so-called crypto winter, I think it is certainly a good time for Taotao to take advantage of this upswing,” Raffone told Cointelegraph.
J. Maurice, representative director for Tokyo-based WIZ K.K., also agreed that the timing is especially advantageous for the Yahoo Japan-backed cryptocurrency exchange, given that “it’s the beginning of a new bull run market cycle.”
However, Maurice warned that the Japanese public might still be hesitant to leave the long-established trading platforms for the new exchange.
“I can’t see bitFlyer losing their spot at #1 anytime soon,” he told Cointelegraph.
The largest exchanges Taotao will face off against in terms of trading volumes “are probably bitFlyer and Liquid,” Raffone confirmed — noting, however, that Taotao’s business model might be different, given that it is backed by a tech juggernaut:
“Its position within the Yahoo Japan’s vast digital ecosystem means it is best suited to support the development of crypto-related services for Yahoo Japan. Therefore, I would say that its closest competitors are Rakuten Wallet and Line Corp’s BitBox, both of which are owned by large tech companies.”
Thus, according to Raffone of Finetiq, Taotao “certainly has a good chance to establish itself as a leading exchange,” however, it will need to be able to leverage Yahoo Japan’s extensive digital footprint and customer base to do so:
“I don’t really see users switching accounts to Taotao from existing exchanges, but Taotao is uniquely positioned to bring new clients to the crypto space from Yahoo Japan’s mainstream businesses.”
Nevertheless, Taotao should also keep in mind that other large players are on the verge of entering the Japanese market. The most notable examples here would be the United States-based Coinbase, which originally planned to establish its operation in Japan within 2018, but is still waiting for the FSA’s approval, and Rakuten Wallet, backed by the eponymous e-commerce giant, which plans to make its market debut this summer.