Japan has emerged as one of the largest cryptoasset markets globally, and was the first country to establish a regulatory framework for cryptoassets.2 In addition to enabling the registration of cryptoasset exchange service providers (exchange providers) wishing to provide cryptoasset exchange services (exchange services) to residents in Japan, this framework seeks to protect cryptoasset exchange customers and to prevent cryptoasset-related money laundering and terrorism financing.

The upsurge of the Japanese cryptoasset market was, however, disrupted in January 2018, when one of the largest cryptoasset exchanges in Japan announced losses of approximately US$530 million from a cyberattack on its network. Adding to the negative publicity, cryptoassets were also increasingly being used for speculative purposes, rather than as a means of settlement.

To remedy the situation, the Financial Services Agency of Japan (FSA) in March 2018 established a Study Group on Crypto Asset Exchange Business, etc. (the Study Group) to assess the adequacy of regulatory measures in addressing issues surrounding exchange services. This was followed by the publication of the Study Group's report (the Report) on 21 December 2018. In addition to summarising the results of the Study Group's deliberations, the Report also proposed a new legal framework for the governance of cryptoassets. This led to the introduction of a bill for the revision of certain legislation governing cryptoassets (the Bill). Tabled before the Diet on 15 March 2019, the Bill contains proposed revisions to the Payment Services Act (PSA) (the PSA Revisions), based mainly on the proposals in the Report. At the same time, the Bill proposes revisions to the Financial Instruments and Exchange ACT (FIEA) (the FIEA Revisions) and to the Act on Sales, etc. of Financial Instruments (ASFI) (the ASFI Revisions), primarily for purposes of strengthening the regulatory framework surrounding cryptoassets. The Bill was passed by both chambers of the Diet on 31 May 2019, and will come into force within a year of its introduction. It is expected to significantly reshape the regulatory landscape surrounding cryptoassets in Japan.

The key provisions of the FIEA Revisions are to: (1) establish electronically recorded transferable rights (ERTRs) and regulations applicable thereto; (2) introduce regulations governing cryptoasset derivative transactions; and (3) introduce regulations governing unfair acts in cryptoasset or cryptoasset derivative transactions.

The key provisions of the PSA Revisions are to: (1) revise the term 'virtual currency' to 'cryptoasset'; (2) enhance regulations governing cryptoasset custody services; and (3) tighten regulations governing exchange services.

The ASFI Revisions apply the ASFI to cryptoasset sales and similar transactions.


i Establishment of ERTRs and regulations applicable thereto

Definition of ERTRs

The FIEA Revisions introduced the concept of ERTRs to clarify the scope of tokens governed by the FIEA.

ERTRs refer to the rights set forth in Article 2, Paragraph 2 of the FIEA that are represented by proprietary value, transferable by means of an electronic data processing system (but limited only to proprietary values recorded in electronic devices or otherwise by electronic means), but excluding those rights that have been specifically excluded by the relevant Cabinet Office Ordinance in light of their negotiability and other factors. Article 2, Paragraph 2 of the FIEA refers to rights of various kinds, and includes tokens issued in security token offerings (STOs). These tokens are, in principle, expected to also constitute collective investment scheme interests (CISIs) under the FIEA. CISIs are deemed to be formed in arrangements where the following three requirements are met: (1) investors (i.e., right holders) invest or contribute cash or other assets to a business; (2) the cash or other assets contributed by investors are invested in the business; and (3) investors have the right to receive dividends of profits or assets generated from investments in the business. Tokens issued under STOs would constitute ERTRs if the three requirements above are satisfied.

Disclosure requirements

As a result of the application of disclosure requirements to ERTRs, issuers of ERTRs are in principle required, upon making a public offering or secondary distribution, to file a securities registration statement and issue a prospectus. Any person who causes other persons to acquire ERTRs or who sells ERTRs to other persons through a public offering or secondary distribution must deliver a prospectus to the other persons in advance or at the time of the acquisition or sale.

Licensing (registration) requirements

As ERTRs are expected to constitute Paragraph 1 securities, a person acting as a broker, an agency or an intermediary of selling or purchasing ERTRS or handling a public offering of ERTRs in the course of a business is required to undergo registration as a Type I financial instruments business operator.

In connection with the above, the FIEA Revisions do not amend the language in Article 2, Paragraph 8, Item 7 of the FIEA, which provides the definitions of 'public offering' and 'private placement'. Accordingly, any ERTR issuer that solicits the acquisition of the ERTR (i.e., undertaking an STO) will be required to undergo registration as a Type II financial instruments business operator, unless it qualifies as a specially permitted business for qualified institutional investors.

ii Introduction of regulations governing cryptoasset derivative transactions

Regulations governing cryptoasset derivative transactions were introduced by the FIEA Revisions to protect users and to ensure that such transactions are appropriately conducted. Specifically, for the purposes of subjecting derivative transactions involving financial instruments or financial indicators to certain entry regulations and rules of conduct issued under the FIEA, cryptoassets have been inserted in the definition of 'financial instruments' under the FIEA Revisions. Furthermore, the prices, interest rates and other aspects of cryptoassets have been incorporated into the definition of 'financial indicators'.

As cryptoassets will be included in the definition of financial instruments, the conduct of over-the-counter derivative transactions related to cryptoassets or intermediary or brokerage activities in relation thereto will also constitute Type I financial instruments business.

iii Introduction of prohibitions against unfair acts in cryptoasset or cryptoasset derivative transactions

In respect of cryptoasset spot transactions and cryptoasset derivative transactions, the FIEA Revisions contain prohibitions against the following: wrongful acts; dissemination of rumours, fraudulence, assault or intimidation; and market manipulation. These prohibitions (which are without limits as to the violating party) are intended to enhance protection of users and to prevent obtainment of unjust benefits. Breach is punishable by penalties.

Insider trading, however, is not regulated under the FIEA Revisions, owing to difficulties both with the formulation of a clear concept of cryptoasset issuers and with the identification of undisclosed material facts.


i Approach of the central bank

Cryptoassets are neither deemed money nor equated with fiat currency. No cryptoasset is backed by the government or the Bank of Japan (the central bank).

ii Money transmission

Only licensed banks or registered fund transfer business operators are permitted to engage in money remittance transactions as a business. The Supreme Court, in a case precedent, has defined money remittance transactions to mean 'the planned or actual transfer of funds, as requested by customers, through utilisation of a fund transfer system without physical transportation of cash between physically distant parties'. As funds do not include cryptoassets, however, a cryptoasset remittance transaction is unlikely to be deemed a money remittance transaction.


To prevent cryptoasset-related money laundering and terrorism financing, the Act on Prevention of Transfer of Criminal Proceeds (APTCP) requires exchange providers to implement know your customer (KYC) and other preventative measures. The APTCP applies to registered exchange providers, and generally requires them to:

  1. verify and record the identity of customers when conducting certain transactions (that is, to implement the KYC process);
  2. record transactions with customers;
  3. report suspicious transactions to the FSA; and
  4. take measures to keep information regarding customer verification up to date, provide education and training for employees, and develop other systems necessary for the proper conduct of the processes described in points (a) to (c).

Under the APTCP, exchange providers must conduct the KYC process when undertaking any of the following:

  1. executing a master agreement with a customer for providing that customer with regular cryptoasset exchange, management and similar services in respect of his or her money or cryptoassets;
  2. transferring cryptoassets into funds or exchanging them for other kinds of assets (or transactions similar thereto), where the receipt and payment of cryptoassets exceeding ¥2 million in value is involved; or
  3. where the exchange provider manages a customer's cryptoassets, transferring the cryptoassets at the customer's request if their value exceeds ¥100,000.


i Regulation of exchange services

The PSA and APTCP were primarily intended to regulate exchange services, with a particular focus on protecting customers and preventing cryptoasset-related money laundering and terrorism financing. Pursuant to the PSA, those wishing to provide exchange services have to be registered with the Prime Minister as exchange providers.3 To qualify, applicants must be either a stock company or a foreign exchange provider with an office and representative in Japan. Accordingly, a foreign applicant is required to establish either a subsidiary (in the form of a stock company) or a branch in Japan as a prerequisite to registration. In addition, applicants are required to have:

  1. at least ¥10 million in capital as well as net assets with a positive value;
  2. a satisfactory organisational structure and appropriate operational systems to enable the proper provision of exchange services; and
  3. appropriate systems to ensure compliance with applicable laws and regulations.

The PSA also provides legislative definitions of 'exchange services' and 'cryptoasset'. Article 2, Paragraph 7 of the PSA defines exchange services as engagement in any of the following activities as a business:

  1. the sale or purchase of cryptoassets, or the exchange of a cryptoasset for another cryptoasset;
  2. intermediating, brokering or acting as an agent in respect of the activities listed in point (a); or
  3. the management of customers' money or cryptoassets in connection with the activities listed in points (a) and (b).

It was highlighted in the Report that cryptoasset custody services share common risks with exchange services, including risks relating to leakage of users' cryptoassets, bankruptcy of service providers, and money laundering and terrorism financing. To address this, the PSA Revisions stipulate that the management of cryptoassets for the benefit of another person constitutes an exchange service, 'unless otherwise specifically stipulated under any other law in cases where the relevant management activity is performed in the course of a business'. As a result, a cryptoasset custody service also constitutes an exchange service, even if it does not involve any of the acts listed in points (a) and (b) above.

A cryptoasset is defined in Article 2, Paragraph 5 of the PSA as:

  1. a proprietary value that may be used to pay an unspecified person the price of any goods purchased or borrowed or any services provided, where the proprietary value may be:
    • sold to or purchased from an unspecified person, provided the sale and purchase is recorded on electronic or other devices through electronic means; and
    • transferred through an electronic data processing system; or
  2. a proprietary value that may be exchanged reciprocally for the proprietary value specified in point (a) with an unspecified person, where the proprietary value may be transferred through an electronic data processing system.

Pursuant to Article 2, Paragraph 5 of the PSA Revisions, the term 'virtual currency' has been revised to 'cryptoasset'. However, the existing definition of 'virtual currency' will remain unchanged. Accordingly, it is generally understood that the change in reference from 'virtual currency' to 'cryptoasset' will result in no substantive change to the legal interpretation of the term.

ii Principal regulations applicable to the operation of exchange providers

Exchange providers are required to:

  1. take the measures necessary to ensure the safe management of information available to them;
  2. provide sufficient information to customers;
  3. take the measures necessary for the protection of customers and the proper provision of services;
  4. segregate the property of customers from their own property and subject such segregation to regular audits by a certified public accountant or audit firm; and
  5. establish internal management systems to enable the provision of fair and appropriate responses to customer complaints, and implement measures for the resolution of disputes through financial alternative dispute resolution proceedings.

iii Additional regulations under the PSA Revisions

Under the PSA Revisions, the following changes are proposed to be made to the current regulatory system governing exchange providers, both to enhance user protection and to clarify the rules relating to exchange providers:

  1. expansion of grounds on which applications for registration as an exchange provider may be rejected;
  2. introduction of a system of advance notification for any proposed amendment to certain aspects of the relevant cryptoasset, such as its name;
  3. introduction of regulations governing advertisements and solicitation in respect of exchange services;
  4. introduction of disclosure requirements where cryptoassets are exchanged (or where certain similar transactions are undertaken) via the grant of credit to users;
  5. enhancement of the obligation on exchange providers to preserve users' assets; and
  6. grant of rights to users to enable their receipt of preferential payment when claiming for the return of cryptoassets.

With respect to point (e), above, an exchange provider is required under the PSA Revisions to both manage the money of users separately from its own money, and to entrust users' money to a trust company or any other similar entity in accordance with the provisions of the relevant Cabinet Office Ordinance. In other words, an Exchange Provider is required not only to manage the money of users in bank accounts separately from its own, but also to entrust such money to a trust company or trust bank, acting as trustee.

In addition, the PSA Revisions require an exchange provider to manage a user's cryptoassets separately from other user cryptoassets in the manner specified in the relevant Cabinet Office Ordinance, to enhance user protection. Although the relevant Cabinet Office Ordinance has not yet been issued, we understand from the explanatory material prepared by the FSA (the FSA Explanatory Paper)4 that an exchange provider will be required 'to manage the cryptoasset of users (other than cryptoassets required for the smooth performance of Exchange Services) through highly reliable methods, such as cold wallets'.

Further, pursuant to the PSA Revisions, an exchange provider is required to:

  1. hold for its own account cryptoassets of the same kind and quantity as those user cryptoassets that are subject to 'requirements specified by the relevant Cabinet office Ordinance as being necessary for ensuring users' convenience and smooth performance of cryptoasset exchange services' (performance assurance cryptoassets); and
  2. manage performance assurance cryptoassets separately from its own cryptoassets.

In other words, when an exchange provider manages its user cryptoassets in hot wallets, it would likely be required to (1) hold its own cryptoassets of the same kind and quantity as the user cryptoassets managed in hot wallets and (2) manage performance assurance cryptoassets in cold wallets separately from its own cryptoassets.


As the mining of cryptoassets does not fall within the definition of exchange service, mining activities are not regulated under existing Japanese regulations. However, interests in mining schemes formulated as CISIs or in cloud mining schemes may be deemed securities under the FIEA and could therefore be subject to its provisions.


i Regulation of initial coin offering tokens and token issuers

Tokens issued by way of an inital coin offering (ICO) take many forms, and the Japanese regulations applicable to a token vary depending on the ICO scheme involved.

Cryptoasset-type tokens

A token that falls within the definition of a cryptoasset will be subject to cryptoasset-related regulations under the PSA. A token that is subject to the PSA must be sold by or through an exchange provider.

On 25 June 2019, the Japan Virtual Currency Exchange Association (JVCEA), a self-regulatory organisation established under the PSA, published a draft of self-regulatory rules and guidelines for ICOs of virtual currency-type tokens entitled 'Rules for Selling New Virtual Currency' (the ICO Rules). Based on the ICO Rules, ICOs may be categorised into two types: (1) where an exchange provider issues new tokens and sells these tokens by itself; and (2) where a token issuer delegates the sale of newly issued tokens to exchange providers. Generally, in addition to ensuring the security of newly issued tokens, including the blockchain, smart contract, wallet tool and other aspects thereof, the ICO Rules require that the following be satisfied for all ICOs:

  1. maintenance of a business structure that facilitates review of the business for which funds are raised via an ICO;
  2. disclosure of information on the token issuer, the token issued, the proposed use of proceeds raised and other matters;
  3. segregation of the management of ICO proceeds (both fiat and cryptoassets) from the management of the issuer's own funds;
  4. proper account treatment and financial disclosure of ICO proceeds; and
  5. proper valuation of newly issued tokens.

Securities-type tokens

As noted in Section II.i, where distributions are paid to token holders on the profits of a token issuer's business and calculated based on the ratio of a token holder's token ownership, the token involved may constitute an ERTR and consequently subject the token issuer to the provisions of the FIEA.

As ERTRs are expected to constitute Paragraph 1 securities, a broker, an agency or an intermediary selling or purchasing ERTRS or handling a public offering of ERTRs in the course of business will be required to undergo registration as a Type I financial instruments business operator.

In addition, any ERTR issuer that solicits the acquisition of ERTRs (i.e., undertaking an STO), will be required to undergo registration as a Type II financial instruments business operator, unless it qualifies as a specially permitted business for qualified institutional investors.

Prepaid card-type tokens

Tokens that are similar to prepaid cards, in the sense of being usable as consideration for goods or services provided by token issuers, may be regarded as prepaid payment instruments, and accordingly could be subject to applicable regulations under the PSA. (A token subject to the prepaid payment instrument regulations under the PSA would not simultaneously be subject to the PSA regulations applicable to cryptoasset (and vice versa).)

ii Regulation of sponsors

As one of the primary purposes of cryptoasset regulation in Japan is the protection of cryptoasset exchange customers, sponsors of ICO issuers are not regulated by the PSA or other laws in respect of cryptoassets.


i Penal provisions applicable to exchange providers

The existing penal provisions found in the PSA are applicable to exchange providers. The following is a summary of some of the major violations under the PSA, and the penalties applicable to these violations.

  1. Imprisonment with penal labour for a term not exceeding three years or a fine not exceeding ¥3 million, or both, is imposed for:
    • providing exchange services without registration;
    • registration through fraudulent means; or
    • name lending.
  2. Imprisonment with penal labour for a term not exceeding two years or a fine not exceeding ¥3 million, or both, is imposed for:
    • a violation of the obligation to segregate customers' funds and cryptoasset from an exchange provider's funds and cryptoasset; or
    • a violation of any order for the suspension of exchange services.
  3. Imprisonment with penal labour for a term not exceeding one year or a fine not exceeding ¥3 million, or both, is imposed for:
    • failure to give public notice of a business assignment, merger, demerger, company split or discontinuance of business, or dissolution in respect of an exchange provider, or giving false public notice thereof;
    • a violation of the obligation to prepare and maintain books and documents, or the preparation of false books or documents;
    • failure to submit the required report (and any required attachment thereto) for each business year to the Prime Minister, or submission of a report containing false statements;
    • failure to comply with an order of the Prime Minister to submit reports or materials, or the submission of false reports or materials; or
    • refusal to respond to questions or provision of false responses at an on-site inspection, or refusing to provide cooperation in respect of the inspection.
  4. Imprisonment with penal labour for a term not exceeding six months or a fine not exceeding ¥500,000, or both, is imposed for any false statement in a registration application or attachments thereto.
  5. A fine not exceeding ¥1 million is imposed for violating an order for the improvement of business operations.
  6. Imprisonment for a term not exceeding six months or a fine not exceeding ¥500,000, or both, is imposed for any failure to make the required disclosure regarding advertisement or solicitation in respect of exchange services.
  7. Imprisonment for a term not exceeding one year or a fine not exceeding ¥3 million, or both, is imposed any misrepresentation or any representation under a cryptoasset exchange agreement5 that will likely lead to an inaccurate understanding of the nature or any other aspects of a cryptoasset.
  8. Imprisonment for a term not exceeding six months or a fine not exceeding ¥500,000, or both, is imposed for:
    • any misrepresentation or representation in an advertisement concerning an exchange service that will likely lead to an inaccurate understanding of the nature or any other aspects of a cryptoasset; or
    • any representation under a cryptoasset exchange agreement or in an advertisement concerning an exchange service, to induce the sale or purchase of a cryptoasset or the exchange of a cryptoasset for another cryptoasset that is (1) not for the purpose of using the relevant cryptoasset as a means of payment, but (2) for the exclusive purpose of promoting the interests in a particular cryptoasset.

ii Civil fraud

The PSA contains no specific regulation for the prevention of unfair trading or sale of tokens. However, the Civil Code or Penal Code of Japan, and certain consumer protection laws and regulations,6 are applicable to such activities, except where the relevant token is deemed a security under the FIEA, in which case the FIEA provisions regulating unfair trading of securities will apply.

In addition, as a result of the PSA and FIEA Revisions, the ASFI was also proposed to be amended to render it applicable to acts that result in the acquisition of cryptoassets. Without these amendments to the ASFI, customers wishing to claim against exchange providers will be required to establish a claim in tort. To address this unsatisfactory situation, the ASFI Revisions expressly impose accountability on exchange providers, including presuming the amount of damages that such service providers would owe, to reduce the burden of proof on the part of service users.


The treatment of consumption tax in respect of cryptoassets has been a hot topic in Japan. In the past, sales of cryptoassets were subject to Japanese consumption tax to the extent that the office of the transferor was located in Japan. However, this position changed in 2017 following amendments to applicable tax laws. Under the amended tax laws, consumption tax is no longer imposable on a sale of cryptoassets after 1 July 2017 if the relevant cryptoasset is deemed a cryptoasset under the PSA, such as Bitcoin. Additionally, it was announced by the National Tax Agency of Japan that gains from the sale or use of cryptoassets will be treated as miscellaneous income, such that gains from the sale or usage of cryptoasset cannot be offset against losses incurred elsewhere.


Under the Foreign Exchange and Foreign Trade Act of Japan, a person who makes any payment from or receives any payment in Japan in excess of ¥30 million is required to notify the Minister of Finance of the payment or receipt. This notification requirement was extended to cover cryptoassets. Specifically, it was announced by the government on 18 May 2018 that the Minister of Finance must be notified of payments or receipts of cryptoassets with a market value exceeding ¥30 million as of the payment date.


The Bill, containing the PSA Revisions, FIEA Revisions, and ASFI Revisions, will introduce a new legal framework for the governance of cryptoassets. Although the framework will likely impose heavier regulatory burdens on exchange providers, it will also bring certain advantages, such as a more orderly structured cryptoasset industry and enhanced user protection. These benefits, together with the FIEA Revisions that will allow cryptoasset derivative transactions and STOs, are expected to facilitate greater growth in the Japanese cryptoasset market.


1 Ken Kawai is a partner and Takeshi Nagase is a senior associate at Anderson Mori & Tomotsune.

2 As noted in Section V, the term 'virtual currency' has been revised to 'cryptoasset' under the PSA Revisions. For the purposes of this chapter, only the term 'cryptoasset' is used.

3 The registration will be carried out through the FSA and the relevant local finance bureau, which acts as the Prime Minister's delegate.

4 The FSA Explanatory Paper can be found at: https://www.fsa.go.jp/common/diet/198/02/setsumei.pdf 

5 A 'cryptoasset exchange agreement' means an agreement between a cryptoasset exchange service provider and a user of cryptoasset exchange services under which cryptoasset exchange services are provided to, or interest in such services are solicited from, the user.

6 Such as the Act on Specified Commercial Transactions, the Consumer Contract Act and the Act against Unjustifiable Premiums and Misleading Representations.