Japan has recently passed a bill to update its Payment Services Act, setting the foundation for a transformed crypto environment. The Financial Services Agency (FSA) of Japan confirmed through a press release that the Cabinet endorsed the legislation, sending it to the National Diet for further discussions on the same day.

Typically, the Diet tends to approve crypto-related amendments provided they have Cabinet support, indicating a favorable outlook for the current bill. A bill must earn a majority from the Cabinet members present at the meeting to be forwarded to the National Diet.

Once the bill is accepted by the Cabinet, it proceeds to the Diet for debate and amendment before being presented to the full assembly. Approval from both the House of Representatives and the House of Councilors is necessary for the Emperor to give a ceremonial declaration, making it law.

Link to relevant tweet

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Key Features of the Reform Bill

The bill introduces a new category of businesses for cryptocurrency transactions—intermediary companies. Previously, businesses facilitating crypto trades were required to operate as fully licensed exchanges. Under the new proposal, non-custodial firms facilitating trades between buyers and sellers can register as crypto brokers. This change aims to lower entry barriers for new businesses and attract more players into Japan’s crypto market.

Additionally, the bill affords stablecoin issuers more flexibility. Currently, regulators mandate that stablecoins be backed by a 1:1 ratio of cash deposits in regulated banks. The new bill suggests that issuers can use particular Japanese and U.S. government bonds with short maturities as collateral, allowing for up to 50% of the stablecoin reserves to be backed by such assets, while the remainder must remain in current accounts. This strategy grants issuers enhanced flexibility in asset management, while ensuring asset stability.

The legislation also lifts certain financial and AML requirements for brokerage firms that do not directly manage client funds.

Through these relaxations, Japan anticipates attracting a surge of new crypto brokerage firms. Established companies such as Mercari, SBI Securities, and Monex Securities are already gearing up to launch their own brokerage offerings, aligning with the proposed reforms.

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Impact of the Bill on the Crypto Landscape in Japan

The proposed legislation aims to bolster Japan’s status as a global crypto hub. While the country has historically been cautious about the borderless nature of cryptocurrencies, it is now striving to implement necessary reforms and embrace the worldwide shift towards digital assets.

The anticipated amendments are expected to enhance investment and stimulate the emergence of new services within Japan’s crypto sector. Stakeholders are closely monitoring discussions in the Diet for signs that these reforms will soon become a reality.

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Key Takeaways

• Japan permits non-custodial businesses to facilitate crypto trades without full exchange licenses.
• Stablecoin issuers gain the ability to back their tokens with government bonds, enhancing financial flexibility.
• Certain financial and AML regulations are relaxed for brokerages that do not manage client funds directly.