Japan’s Financial Authority Clarifies Stance on Initial Coin Offerings

The Japanese Financial Services Agency (FSA) has issued a statement regarding initial coin offerings (ICOs). In addition to risk warnings, the agency detailed how two existing laws may apply to token sales.

FSA Warns of ICO Risks
Japan's Financial Authority Clarifies its Stance on Initial Coin OfferingsJapan’s FSA published a statement on Friday, clarifying its position on ICOs. The agency first warned the public of two risks applicable to ICO investors.

The first risk concerns price volatility, which the agency cautioned, “the price of a token may decline or become worthless suddenly.” The second risk is “potential for fraud.” The FSA warned that goods and services outlined in ICOs’ whitepapers may not be realized, adding that:

You should have a deal [invest] at your own risk only after understanding enough the risks above and the content of an ICO project if you buy a token. You should also pay careful attention to suspicious solicitation of ICOs.
Two Existing Laws May Apply
Although Japan has no specific laws for ICOs, they may be regulated by two existing laws. For businesses launching an ICO, the FSA emphasized:

ICOs may fall within the scope of the Payment Services Act and/or the Financial Instruments and Exchange Act depending on how they are structured.
Japan's Financial Authority Clarifies its Stance on Initial Coin OfferingsIf a token issued in an ICO falls under the virtual currency provisions of the Payment Services Act, then businesses providing digital currency exchange services regularly “must be registered with each Local Finance Bureau that is the delegated authority to the Prime Minister,” the FSA wrote. So far, eleven cryptocurrency exchanges have been approved by the agency.

However, “if an ICO has the characteristics of an investment, and the purchase of a token by a virtual currency is practically deemed equivalent to that of legal tender, the ICO becomes subject to regulations under the Financial Instruments and Exchange Act,” the agency described.

ICOs in Japan
The ICO market in Japan is growing. Small companies, as well as large corporations, are using token sales to raise money. Recently, news.Bitcoin.com reported on the country’s internet giant, GMO, planning to use an ICO to sell its 7nm bitcoin mining boards. Japanese financial services company SBI Group is also launching two ICO businesses: a financing business and a rating information business through Morningstar Japan.

Japan's Financial Authority Clarifies its Stance on Initial Coin OfferingsTech Bureau, which operates the Japanese bitcoin exchange Zaif, launched a platform called Comsa in August. The company described Comsa as a “one-stop solution that includes a creation of multi-language whitepaper, pre-configured token sale dashboard, blockchain integration services and PR services, dedicated for your own ICO.”

Singaporean bitcoin exchange Quoine, which has a strong presence in Japan, announced early this month the launch of a global ICO known as the Qash. Both Quoine and Zaif were among the eleven bitcoin exchanges approved by the FSA in September.

Furthermore, Chinese bitcoin exchanges are reportedly trying to move their ICO businesses to Japan. According to theleading Japanese bitcoin exchange Coincheck, the company has received “hundreds of requests from Chinese startups and startups around the world asking us to list their tokens, after the Chinese government banned ICOs,” the exchange revealed.

What do you think of Japan’s position on ICOs? Let us know in the comments section below.

by Kevin Helms