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Japan: Bitcoin to Be Regulated

(Nov. 4, 2016) On June 3, 2016, an act that amended Japan’s Bank Act and other acts, including the Payment Services Act, was promulgated. (Act to Amend Parts of the Bank Act and Other Acts in Order to Correspond with Changes in the Environment Made by Information and Communications Technologies, Act No. 62 of 2016, KANPO, Extra No. 123 (June 3, 2016), at 56 (in Japanese); Payment Services Act, Act No. 59 of 2009, JAPANESE LAW TRANSLATION (translation done prior to the amendment).) The amendment will be effective within one year from the promulgation date. (Act No. 62 of 2016, Supp. Provisions, art. 1.)

The amended Payment Services Act defines Bitcoin and other virtual currency as

1. Property value that can be used by unspecified persons for payment of equivalent value for purchased goods, rental fees, or services, that can be purchased by or sold to unspecified persons, and that is transferable via an electronic data processing system (limited to property values that are stored electronically on electronics, excluding currency and currency denominated assets); or

2. Property value that can be mutually exchangeable for 1 above with unspecified persons and is transferable via an electronic data processing system. (Amended Payment Services Act, art. 2 ¶ 5.)

Because the Cabinet delegates its authority over most of the matters under the Payment Services Act to the Financial Services Agency (FSA) (id. art. 104), the FSA became the regulatory agency of virtual currency through the amendment. The amended Act will require virtual currency exchanges operating in Japan to register with the FSA. (Id. arts. 63-2 & 63-3.) The Act requires virtual currency exchanges to separately manage customer’s money or virtual currency apart from their own. The state of such management must be reviewed by certified public accountants or accounting firms. (Id. art. 63-11.)   Virtual currency exchanges must have a contract with a designated dispute resolution center with expertise in virtual currency exchange. (Id. art. 63-12.) The FSA will be authorized to inspect virtual currency exchanges and issue orders to improve their practices. (Id. arts. 63-15 & 63-16.)

The Act on Prevention of Transfer of Criminal Proceeds was also revised by the same amendment act. (Act No. 22 of 2007 (translation done prior to the amendment).)  By the amendment, virtual currency exchanges became subject to regulation under the Act on Prevention of Transfer of Criminal Proceeds. (Id. art. 2 ¶ 2 item 31.) Virtual currency exchanges will be obligated to check the identities of customers who open accounts, keep transaction records, and notify authorities when a suspicious transaction is recognized. (Id. arts. 4, 7, & 8.)