Japan’s financial regulatory body has announced significant changes affecting the treatment of foreign-issued stablecoins, a development that reflects broader trends in technological finance.
New Classification for Foreign Stablecoins
On Tuesday, Japan’s Financial Services Agency (FSA) revealed its plans to amend existing regulations, recognizing certain foreign trust-based stablecoins as electronic payment instruments rather than as securities under domestic law. This change is set to take effect on June 1, 2026, allowing these financial instruments to be managed by registered domestic operators.
The amendment applies to qualified foreign stablecoins that comply with specific criteria outlined in the Cabinet Office Ordinance. As a result, these stablecoins will no longer be categorized as “securities” under the Financial Instruments and Exchange Act (FIEA).
Key Requirements for Stablecoin Issuers
The successful reclassification of stablecoins hinges on several essential requirements:
- Legal Registration: Issuers must possess a registration or license under foreign jurisdictions that mirror Japan’s Payment Services Act or Banking Act.
- Asset Management: Reserve assets backing the stablecoins must be managed per applicable foreign laws.
- Audit Compliance: Issuers are required to undergo audits conducted by certified professionals equivalent to public accountants.
- Risk Mitigation: Measures to prevent illicit use of stablecoins must be implemented, including transaction suspension protocols.
Under these new guidelines, the FSA will conduct a thorough review of each issuer’s compliance with these standards, based on their supervisory frameworks. Furthermore, stablecoins must also ensure that their trust property and reserve assets are denominated in a consistent currency.
Case-by-Case Assessment for Redemption
Authorities will evaluate each stablecoin individually to ascertain whether it can be reliably redeemed at its issue price, similar to domestic electronic payment instruments. Therefore, the treatment of stablecoins this way could vary based on their reserve holdings and audit practices.
Japan’s Evolving Crypto Regulatory Landscape
The last few years have seen Japan actively reform its approach to crypto assets. Recent changes to legislation have expanded the legal framework surrounding stablecoins, which were first initiated through amendments to the Payment Services Act in 2022.
The government has also revamped the FIEA, designating crypto assets as financial instruments. Furthermore, tax reforms are on the table, proposing a flat 20% tax rate on crypto income and an alternate taxation system for different transactions.
Recently, the FSA, along with other government entities, released guidance aimed at regulating crypto use in real estate transactions. This guidance emphasizes:
- know your customer (KYC): Real estate firms engaging in crypto transactions must rigorously implement KYC procedures.
- Source-of-Funds Verification: Agencies are encouraged to ascertain the origin of funds in crypto dealings.
In addition to KYC requirements, the guidance establishes obligations regarding the reporting of cross-border payments and unlicensed transactions. It also highlights the risks associated with operations that involve crypto exchange for fiat currency, which may inadvertently lead to regulatory violations.
