Financial Services Agency’s Crypto Asset Guidelines

On the 24th, the Financial Services Agency (FSA) released responses to the public comments it solicited in December last year regarding its views on the eligibility of various tokens as crypto assets and how to supervise acquired crypto asset exchange companies.

As the types of tokens issued on blockchains diversify, including NFTs (non-fungible tokens), we are working to clarify the interpretation of crypto assets under the Payment Services Act.

On December 16, 2011, the Financial Services Agency (FSA) released a partial revision (draft) of the “Administrative Guidelines (Volume 3: Financial Companies)” (16 Crypto Asset Exchange Service Providers). There is a history of soliciting public comments at that time. The amendment (draft) was mainly related to the following contents.

• Clarification of the interpretation of crypto assets eligibility for various tokens such as items and contents issued on the blockchain
• Supervisory response to crypto-asset exchange service providers in light of diversification of business models
• Supervisory response to the crypto asset exchange service provider in the case of selling or transferring the crypto asset exchange service provider due to the transfer of the shareholder by the major shareholder of the crypto asset exchange service provider, etc.

In the following, we will summarize our views on the eligibility of NFTs as crypto assets based on the revision (draft) of the Administrative Guidelines (Volume 3: Financial Companies) and public comments.

connection:Dialogue: NFTs and Japanese Laws and Regulations | GVA Law Office x TriasJapan

Eligibility of NFT for crypto assets

As a preliminary knowledge, I would like to note that the Financial Services Agency has used the terms “No. 1 crypto-asset” and “No.

“No. 1 crypto assets” are assumed to be representative crypto assets that already exist, such as Bitcoin (BTC) and Ethereum (ETH). There are requirements such as “It can be used for unspecified persons to pay the price” and “It can be purchased and sold with unspecified persons as the counterparty.”

These crypto-assets are treated as “fund settlement instruments” under the Payment Services Act, and crypto-asset exchanges are regulated by the Payment Services Act, including registration and license acquisition.

On the other hand, “No. 2 crypto assets” refer to new types of crypto assets other than existing virtual currencies. Those that have a market that can be mutually exchanged with No. 1 crypto-assets and that have economic functions fall under this category. The Financial Services Agency has not set specific regulations for Type 2 crypto-assets, but it is expected that regulations will be tightened in the future.

Recently, among cryptocurrency investors and related businesses, even if it is an NFT, if it can be used as a consideration and can be exchanged for Japanese yen or foreign currency, it may fall under No. 1 crypto assets, or Questions have been raised about whether trading cards, digital art, and collectible NFTs fall under category 2 crypto assets.

If NFTs fall under the category of crypto-assets, trading them or exchanging them for other crypto-assets falls under the category of crypto-asset exchange business, and requires registration as a crypto-asset exchange business.

Based on the above, by summarizing the “Administrative Guidelines (Volume 3: Financial Companies)” and the responses to public comments, the judgment criteria regarding the eligibility of NFTs for crypto assets can be summarized as follows.

①If the NFT itself does not have a means of payment, it does not fall under Category 1 crypto-assets. An individual fact-finding survey is required, and the judgment criteria are whether the following two conditions are met.A: The issuer has clarified its intention to prohibit its use as a means of payment (terms of use, etc.) B: Objectivity (limited quantity issued, etc.) makes it unsuitable as a means of payment

②Even if the property value does not meet the requirements for a Category 1 crypto-asset, it is considered a Category 2 crypto-asset if it can be exchanged with an unspecified person for a Category 1 crypto-asset.

③However, trading cards and in-game items that do not have the same economic functions (a, b) as Category 1 crypto-assets are not considered Category 2 crypto-assets.

Regarding this point, the FSA consistently states the following in its responses to public comments and through its guidelines.

③Also, like art NFT, if it is traded at a high price and does not have the same economic functions as the No. 1 crypto-asset

④However, since there are differences in the management method and usage of the issuer depending on the NFT, whether or not it is treated as a crypto asset depends on individual and specific evaluations based on the actual situation.

For example, it is speculated that even NFTs may fall under Category 2 crypto-assets if they are issued in large quantities and used for payments like cash.

Japan’s Web3 policy

In the public comment, there was a question as to whether the “DAO membership governance token” falls under the No. 2 crypto asset. The Financial Services Agency also states that it will consider whether it has the same economic function as the No. 1 crypto asset.

In June 2010, the Cabinet decided on the “Grand Design and Implementation Plan for New Capitalism,” which included “improving the environment for promoting Web3 (tax system)” and “using Metaverse and NFTs (non-fungible tokens). “Expansion of the use of content that was

The Basic Policy on Economic and Fiscal Management and Reform 2022 (Basic Policy 2022), which was approved by the Cabinet in the same month, also indicated its intention to fully develop the environment for Web3 (distributed web).

connection:Why did the Japanese government start promoting the “Web3 policy”?Summary of important points and related news

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