Japan is set to enforce the updated cryptocurrency laws in the country starting May 1, putting more clarity on the regulations around the decade-old sector.
The Japanese House of Representatives passed amendments to two pieces of legislation – the Payment Services Act (PSA) and Financial Instruments and Exchange Act (FIEA) – last year, tightening the authorities’ grip on the digital asset industry.
Though the legislation was earlier scheduled to be enforced starting this month, a delayed official notice has pushed the date to the beginning of next month.
Instead of bringing a new set of laws, the lawmakers had amended existing legislation to properly regulate the digital asset industry.
Defining crypto is the key
The updated PSA and FIEA have refined terminologies, calling them “crypto assets” instead of “virtual currencies.”
When enforced, the initial coin offerings (ICOs) and security tokens (STOs) will be regulated under the FIEA Act, which includes a concept of electronically recorded transferable rights (ERTRs).
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The updated FIEA Act will also regulate the digital asset derivatives market, which until now was largely unregulated despite significant volumes.
This will, in general, eliminate fraudulent activities in the digital asset sectors.
The law will also mandate all digital asset businesses to separate users’ crypto deposits from their own cash flow, meaning they need to involve a third-party custodian to hold on to the customer deposits in cold wallets.
For services with hot wallets, exchanges need to match and hold the same type of asset in the same amount so that customers can be compensated in case of any thefts on the platforms.
The Japanese authorities imposed strict laws around the crypto industry amid the $535 million hack of Coincheck. The Financial Services Agency (FSA) also mandated all crypto exchanges to obtain a license for operations in the country.
With the most recent addition of OKCoin Japan, 23 crypto exchanges are now permitted to offer services in the Asian country, some of which are yet to start their operation.