Initial Coin Offerings and Regulation in Japan

Abstract

This article examines the regulation of initial coin offerings (ICOs) from the Japanese perspective. An ICO may be provisionally defined as a method of raising capital in exchange for digital “coins” or “tokens” that entitle holders to certain rights. Investors who receive the digital tokens are normally provided with an opportunity for reinvestment by selling them on an exchange. Japanese state actors have been acutely aware of the risks associated with ICOs. However, it took some time before regulatory reforms were adopted aiming at enhancing protection of ICO investors on resale markets. As a result of a recent initiative by the Japanese Financial Services Agency, the first regulation of ICOs was implemented as an amendment to the Japanese Financial Instruments and Exchange Act on 31 May 2019. This article discusses critically these recent legal developments in the realm of cryptocurrency exchange and ICO markets in Japan, as well as an earlier attempt to regulate cryptocurrencies in a 2016 amendment to the Japanese Payment Services Act. The article concludes that it is important to closely monitor how ICOs develop and to keep the issue on the regulatory agenda, in order to be prepared for alternative regulatory arrangements. Japan, Initial Coin Offerings (ICOs), Cryptocurrencies/Crypto Assets, Regulatory Background, Investor Protection, Financial Services Agency, Payment Services Act, Financial Instruments and Exchange Act, Regulation on Cryptocurrencies, New Regulation on ICOs