Financial Services Agency, Japan categorize Stablecoins away from Cryptocurrencies

Financial Services Agency, Japan categorize Stablecoins away from Cryptocurrencies

The Financial Services Agency (FSA), Japan’s top financial regulator has explained how stablecoins are treated under current law of Japan. They have said that Stablecoins are not virtual currencies and the regulator has clarified the registration demands for its issuers and dealers.

Stablecoins like Gemini Dollar [GUSD], Paxos Standard [PAX], USD Coin [USDC] and Tether [USDT] are not cryptocurrencies under the law. This has been declared by Japan’s Financial Services Agency (FSA). These stablecoins have been termed as prepaid payment instruments. They can be regulated differently from cryptocurrencies.

Japan’s amended Fund Settlement Law and the amended Payment Services Act which went into effect in April last year regulates the country’s cryptocurrency industry. The Fund Settlement Law defines “virtual currencies,” which include cryptocurrencies as a means of payment and exempts them from consumption tax.  

The Payment Services Act requires cryptocurrency exchange operators to register with the Financial Services Agency (FSA). The FSA stated:

“In principle, stable coins pegged by legal currencies do not fall into the category of ‘virtual currencies’ based on the Payment Services Act.  Generally speaking, companies need to register as the ‘Issuer of Prepaid Payment Instruments’ or the ‘Funds Transfer Service Providers’ based on the Payment Services Act, when virtual currency broker-dealers trade stable coins. Therefore, stablecoin issuers in Japan do not have to register with the FSA as a crypto company. Unless of course, they are engaging in crypto activity besides stablecoins, which is likely.”

The FSA further explained that due to the characteristics of stablecoin, it is not appropriate to suggest what companies need to register so as to issue stable coins.   With the rise in popularity of stablecoin cryptocurrencies across the world, FSA was asked how these coins are treated under Japanese law.

The regulator clarified, “In principle, stable coins pegged by legal currencies do not fall into the category of ‘virtual currencies’ based on the Payment Services Act.”

If we talk about the fund transfer service providers the Japanese Bank said, “under the Payment Services Act, those registered as fund transfer service providers may perform fund transfer transactions of up to one million yen [$9,000] without a banking license.” 

The FSA elaborated, noting:

“When a person/an entity engages in exchange transactions of one million yen equivalent or less in the course of trade, registration as a funds transfer service provider is required. For exchange transactions exceeding one million yen, a license for banking business pursuant to the ‘Banking Act’ is required.”

The Japanese tech giant GMO brought about this decision by the FSA. The GMO has announced on October 9th that it is preparing to issue stablecoins.

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