Japanese Bill Plans to Expand Stablecoin Assets, Other Crypto Changes

Last week Japan’s Financial Services Agency disclosed that a new Bill has been submitted to the National Diet to update the Payment Services Act, the legislation that governs stablecoins and cryptocurrencies. The key changes relating to stablecoins and crypto include:

• More diversity in stablecoin reserves for trust-style stablecoins
• The ability to order exchanges to provide onshore custody of all spot crypto and stablecoins for the purposes of bankruptcy protections
• Creating a new kind of intermediary that acts as a broker, introducing clients to crypto exchanges.

The existing version of the Payment Services Act supports the issuance of stablecoins by three types of institutions: banks, money transfer businesses and trust companies. While stablecoins are still extremely nascent in Japan, it’s expected that trust companies are likely to be the most prolific as they support issuance on behalf of third parties and are similar to structures used elsewhere.

For example, Mitsubishi UFJ Trust had discussions about working with Binance for stablecoin issuance. Current legislation requires trust company stablecoins to keep all reserves in demand deposits at banks. The Bill allows up to 50% of reserves to be held in term deposits and/or government bonds, provided the one-to-one backing is maintained.

Japan was the host of the first big cryptocy exchange collapse – Mount Gox in 2024. Hence, when FTX went bankrupt in 2022, users of FTX Japan were not impacted by the foreign bankruptcy proceedings. However, the reason was because FTX provided derivatives trading and regulators had issued an order requiring it to hold all client assets in Japan. If a cryptocy exchange only deals in spot transactions, the regulator could not make such an order. Hence, regulators want the law changed, so domestic custody orders can be made for spot (only) crypto exchanges.

Currently in Japan, if a broker introduces clients to a cryptocy exchange, the broker is expected to register as an exchange themselves. The Bill aims to create a new class of intermediary for introducers that do not operate an exchange. Like exchanges, they will be responsible for asset and risk disclosures to clients. Crypto advertising restrictions will also apply. 

However, they will not hold client funds, so will not be subject to capital requirements. Given the exchanges have to conduct anti money laundering compliance on all clients, the intermediary won’t need to. This new intermediary role also applies if some is an introducer for stablecoins. As a sign of how nascent stablecoins are in Japan, crypto exchange SBI VC Trade recently landed the first license in Japan as an “Electronic Payment Instruments Exchange Service Provider”. This is required to deal with foreign stablecoins, allowing SBI VC Trade to support USDC.