Japan FSA Reviews Crypto Investment Protections

The Financial Services Agency in Japan has already begun an in-depth assessment of its cryptocurrency rules. This analysis intends to determine whether regulating cryptocurrencies according to the Payments Act is still viable.

The Financial Services Agency (FSA) in Japan has begun a thorough assessment of its cryptocurrency regulations to determine whether the current practice of regulating cryptocurrencies under the Payments Act is still viable.

The analysis aims to identify areas where the existing legal framework may be insufficient or outdated, considering the rapidly evolving nature of the crypto asset market.

As part of the review, the FSA is considering the possibility of classifying cryptocurrencies as "specified financial instruments" under the Financial Instruments and Exchange Act.

Currently, cryptocurrencies are categorized as "other payment instruments" under the Payments Act, which subjects them to less stringent regulations compared to traditional financial instruments.

If cryptocurrencies are reclassified as specified financial instruments, they will come under the direct purview of the Securities and Exchange Surveillance Commission (SESC), which has broad authority to oversee and regulate the trading of specified financial instruments on exchanges in Japan.

This change could lead to stricter oversight and regulation of crypto exchanges, including measures to prevent market manipulation, insider trading, and other illicit activities.

However, the reclassification could also pave the way for the launch of crypto exchange-traded funds (ETFs) in Japan, a development that the crypto industry and investors have eagerly anticipated.

Crypto ETFs are a type of collective investment scheme that tracks the performance of a basket of cryptocurrencies, allowing investors to gain exposure to the crypto market without having to purchase and hold the digital assets directly.

The launch of crypto ETFs has been a contentious topic in Japan, with discussions and proposals dating back several years. However, the authorities have been hesitant to approve crypto ETFs due to concerns over market volatility, liquidity, and the potential risks to retail investors.

Currently, there are no crypto ETFs available in Japan, despite their popularity and presence in other markets, such as the United States.

The FSA's assessment is expected to continue over the coming months, and any potential changes to the regulatory framework for cryptocurrencies in Japan are likely to be implemented in the next fiscal year, which begins in April 2024.

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