Japan: Regulator warns of Initial Coin Offering risks
Source: Asia Insurance Review | Dec 2017
Japan Cyber Risk Management Technology
Japan’s Financial Services Agency (FSA) has issued an advisory warning to users and business operators about the risks of Initial Coin Offerings (ICOs), or digital token sales.
The advisory, issued on the FSA website on 27 October, warned consumers that digital tokens issued in an ICO are subject to price volatility and potential for fraud. As for businesses, the FSA noted that ICOs may fall within the scope of regulations, such as the Payment Services Act and/or the Financial Instruments and Exchange Act depending on how they are structured.
“Businesses involved in an ICO should adequately fulfil their duties required by related laws and regulations such as registration when their services are regulated by those acts. Delivering such services without registration is subject to criminal penalties,” said the FSA.
If a token issued is considered virtual currency under the Payment Services Act, the responsible businesses which provide exchange services of virtual currencies on a regular basis must be registered with each Local Finance Bureau that is delegated authority to by the Prime Minister.
Meanwhile, if an ICO has the characteristics of an investment and the purchase of a token by a virtual currency is practically deemed equivalent of that by a legal tender, the ICO becomes subject to regulations under the Financial Instruments and Exchange Act.
Japan was an early adopter in Asia to recognise Bitcoin as legal tender, with officials endorsing several cryptocurrency exchanges recently. While its neighbours China and South Korea have banned ICOs, Japan has moved towards control rather than outlawing. It is responsible for some 60% of global Bitcoin trading volume. A