Japan Eases Crypto Regulations to Boost Flexibility

Japan is set to ease regulations on stablecoins and crypto transactions, aiming to boost financial flexibility and protect digital asset ownership for users. The Financial Services Agency (FSA) has approved a report suggesting modifications to current statutory regulations, which will address two key legislations: the Trust Business Act and the Payment Services Act.

The proposed changes aim to simplify crypto asset business operations and address concerns raised by local crypto businesses regarding restrictive safety measures. The Financial System Council adopted the report after ongoing discussions between August 2024, analyzing rules connected to payment service operations, remittances, and stablecoin and cryptocurrency standards.

Previously, businesses involved in crypto transaction mediation had to register according to strict guidelines, even if they did not handle user assets. The introduction of an "intermediary business" regulation is proposed to counter this issue, increasing flexibility in compliance standards while supporting anti-money laundering rules. This change would exempt intermediaries who do not hold client assets from rigorous financial requirements, while crypto exchanges and issuers remain accountable for user fund security measures.

The framework under consideration also modifies the criteria on which stablecoins can be based. Currently, regulations only permit demand deposits as the backing method for stablecoins. The new proposal allows stablecoin issuers to sustain their reserves through both short-term government bonds and fixed-term deposits, not exceeding 50% of the total backing.

These modifications grant stablecoin issuers better fund management capabilities and require the implementation of additional protective structures to ensure user security. After report approval, the FSA plans to start carrying out legal modifications to the Trust Business Act and the Payment Services Act. Finance Minister Katsunobu Kato supported the plan, emphasizing the necessity of implementing a digital payment system that ensures both safety and efficiency.