Japan’s chief financial regulator, the Financial Services Agency (FSA), has said that stablecoins are not virtual currencies under the definition provided in the Payment Services Act, in a statement that could have profound effects on how stablecoins are regulated in the country.
Cryptocurrency laws in Japan were overhauled back in April 2017 with revisions to the Payment Services Act and the Fund Settlement Law, effectively creating a new legal regime for cryptocurrency transactions and businesses.
In particular, cryptocurrencies are deemed to be a means of payment, and as a result, do not attract consumption tax. As such, there may be no obligation for firms issuing stablecoins to register for licenses, though they may need to register for issuing payment instruments.
In a statement to news.bitcoin.com, the FSA set out its position in relation to the status of stablecoins, saying, “In principle, stable coins pegged by legal currencies do not fall into the category of ‘virtual currencies’ based on the Payment Services Act.”
Instead, stablecoins were deemed to be a form of ‘prepaid payment instrument,’ which means a different set of regulations for companies issuing and facilitating stablecoin transactions, compared to those dealing in cryptocurrencies as legally defined.
“Generally speaking, companies need to register as the ‘Issuer of Prepaid Payment Instruments’ or the ‘Funds Transfer Service Providers’ based on Payment Services Act, when virtual currency broker dealers trade stable coins,” the regulator told the crypto news outlet.
The definition also means that transactions of up to JPY1 million, around $9,000, can be processed in stablecoins without the requirement for a banking license, allowing fund transfer services to operate up to that limit with a much lower compliance threshold.
According to the FSA, “When a person/an entity engages in exchange transactions of one million yen equivalent or less in the course of trade, registration as a funds transfer service provider is required. For exchange transactions exceeding one million yen, a license for banking business pursuant to the ‘Banking Act’ is required.”
Stablecoins, or fiat-pegged cryptocurrencies, are designed to tokenize fiat, through providing a price-stable cryptocurrency for transactions on chain.
The clarification from Japanese regulators will provide more certainty for those promoting stablecoins, at a time of increasing interest and development activity around stablecoin projects.
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