Japan’s Financial Services Agency (FSA) has declared that stablecoins, like Tether (USDT), Gemini Dollar (GUSD), USD Coin (USDC) and Paxos Standard (PAX), are not cryptocurrencies under the law. Rather, they are prepaid payment instruments and are regulated differently from cryptocurrencies.
Stablecoins are inherently different than other cryptocurrencies since they are pegged to fiat currencies, and are backed by fiat currencies held in reserve at a bank. All other cryptocurrencies have a fluctuating price according to supply and demand, while stablecoins should have a constant price of 1 unit of the fiat currency they are pegged to, such as USD, EUR, and JPY. That being said, they use blockchain technology and are essentially, a hybrid of fiat and cryptocurrency.
The FSA stated: “In principle, stable coins pegged by legal currencies do not fall into the category of ‘virtual currencies’ based on the Payment Services Act… 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”. Therefore, stablecoin issuers in Japan do not have to register with the FSA as a crypto company. Unless of course they are engaging in crypto activity besides stablecoins, which is likely.”
There are two types of prepaid payment instruments according to Japanese law, for one’s own business and for a third party, and these have different regulations. As for fund transfer service providers, if they transfer more than JPY 1 million (USD 9,000), they need a banking license to operate. This could be a major obstacle for Japanese companies to issue and transact stablecoins but is simultaneously logical.
The FSA said: “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.”
This decision by the FSA was perhaps brought about by the internet giant GMO, which runs a crypto exchange, and announced on 9 October 2018 that it is preparing to issue stablecoins.
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