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July 3, 2018
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Japan's Financial Services Agency (FSA) may change the legal status of the “cryptocurrency” due to some security issues faced by the country’s crypto exchanges. In Japan, the digital currency is now considered as a means of payment, while with the new regulation it can get the status of a commodity.

Why it is important

  1. There is no single worldwide regulatory policy on cryptocurrency. In 2014, the U.S. Internal Revenue Service announced that cryptocurrency is the same commodity as gold or real estate. International organizations along with the governments are actively discussing the issue of regulating cryptocurrencies. In March this year, members of the G20 called for a unified decision on this topic but noted that it should be studied in greater details.
  2. Japanese watchdogs are also considering a possible change in the taxation of the cryptocurrency trade. Now such activity is taxed at a rate of 15-55%, however, some legislators suggest to change the progressive taxation on a fixed one at a rate of 20%.

At the moment FSA controls cryptocurrency exchange operations through the Law on Payment Services. According to this act, the cryptocurrency is a means of payment, the same as electronic money.

Now the FSA is considering the transfer of cryptocurrency under the jurisdiction of the Financial Instruments and Exchange Act (FIEA). In this case, crypto assets will be considered a financial product. This will allow implementing such cryptocurrency derivatives as exchange-traded funds. However, the same law will also oblige crypto exchanges to provide a more reliable protection for traders. Companies will have to manage the securities and funds of the clients separately from corporate assets. The revision of the legislative norms in Japan began in January 2018 after the Coincheck crypto exchange was attacked by hackers. Back then users lost more than $500ml, and the state began an investigation of the 15 unregistered Japanese crypto exchanges’ activities. A significant number of violations and shortcomings were identified.

Last month several large crypto exchanges faced the criticism of FSA regarding their security systems and received recommendations for fixing the problems.

By Nadya Astam

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