Japan Reviews Crypto Regulations, Eyeing ETFs and Investor Safety

Japan is reportedly set to evaluate the efficiency of its cryptocurrency regulations.

This evaluation, scheduled for the coming months, may clear the path for the introduction of cryptocurrency exchange-traded funds (ETFs) in the nation.

Inspection Focused on Investor Protections

The information was first reported by Bloomberg, citing a source from Japan’s Financial Services Agency (FSA) who preferred to remain anonymous. The evaluation aims to determine the adequacy of the country’s existing crypto regulation framework established under the Payments Services Act (PSA).

Initially passed in 2009, the PSA has undergone multiple amendments by Japanese legislators to adapt to the evolving financial services environment shaped by digital currencies.

The act recognizes Bitcoin (BTC) and other cryptocurrencies as legitimate properties. Additionally, it mandates that crypto exchanges be registered and adhere to the nation’s Anti-Money Laundering (AML) and Counterfinancing of Terrorism (CFT) protocols.

Moreover, Japan’s Financial Instruments and Exchange Act (FIEA) is crucial in the regulation of digital assets, particularly concerning transactions involving crypto derivatives. The FSA aims to evaluate whether these rules have effectively protected investors, given that many Japanese individuals primarily engage with cryptocurrencies as investment vehicles rather than for transactional purposes.

Bloomberg reports that this initiative might result in legislative amendments or even a redefinition of digital assets as financial instruments under the FIEA. Should this occur, analysts propose that it would not only enhance investor protection protocols but could also facilitate discussions for reduced crypto taxation within the industry.

Possible Changes to Crypto Taxation and Security

The country’s strict cryptocurrency regulations were designed to prevent incidents like the Mt. Gox hack and subsequent insolvency, as well as the 2023 FTX collapse from impacting local crypto investors negatively.

Recently, the crypto exchange DMM Bitcoin experienced a loss exceeding $300 million worth of BTC due to a hacking incident. The platform subsequently announced it would compensate all users affected by the breach and acquire a portion of the stolen BTC.

Following the incident, the FSA required DMM Bitcoin to submit a business improvement strategy by the end of October, detailing how it plans to enhance the protection of customer assets going forward.

Japan has already made strides in relaxing its crypto tax policies. In June 2023, the National Tax Agency released a partial update to its corporate tax regulations, exempting firms that issue crypto tokens from the 30% tax on their holdings.

Prime Minister Fumio Kishida is actively promoting Web3, an anticipated evolution of the Internet centered around blockchain technology and cryptocurrencies. This push has spurred some of the nation’s largest enterprises, such as Sony and Mitsubishi Bank, to enter the crypto space.