Japan's Financial Services Agency (FSA) has clarified how stablecoins should be treated and traded under Japanese law, and it's not in the same way as other cryptocurrencies.
Two key laws apply to cryptocurrencies in Japan.
First, the Fund Settlement Law classifies cryptocurrencies as a means of payment, which makes them exempt from consumption tax.
Second, the Payment Services Act means that cryptocurrency exchanges must register with the FSA. The rules of registration and the process of authorization to operate as a cryptocurrency exchange in Japan were tightened in May 2018.
The FSA recently confirmed to news.Bitcoin.com that stablecoins are a bit different. The FSA said: "In principle, stablecoins pegged by legal currencies do not fall into the category of 'virtual currencies' based on the Payment Services Act."
Due to the characteristics of stablecoins, the FSA has said "it is not necessarily appropriate" for them to suggest what stablecoin operators need to "obtain or register before issuing stablecoins." For exchanges offering stablecoins, the FSA added: "Generally speaking, companies need to register as the 'Issuer of Prepaid Payment Instruments' or the 'Funds Transfer Service Providers' based on [the] Payment Services Act."
"Prepaid payment instruments" fall into two categories: They are either for a business' own use or for provision to a third-party business. The two categories have their own reporting and registration requirements.
"Fund transfer service providers" are allowed to perform transactions of less than the equivalent of $9,000 without a banking license. Transactions over $9,000 must be conducted by an authorized bank.
The tighter controls implemented by the FSA in May 2018 for cryptocurrency exchanges were to protect Japanese investors from attacks like the $500 million Coincheck hack of January 2018. As part of the Payment Services Act, exchanges must register with the FSA. The stricter rules mean they have to meet five key criteria, document and support their applications, and host visits from FSA staff before being authorised to trade. These rules will likely be modified after the FSA decided last week to let the country's cryptocurrency exchanges self-regulate.
The issue of stablecoin classification could soon be relevant. Japan's GMO Internet Group revealed plans with Aozora Bank Group in July 2018 to build an online banking business underpinned by blockchain technology. Its subsidiary cryptocurrency exchange, GMO Coin, operates one of Japan's 16 fully approved cryptocurrency exchanges. In early October 2018, it announced it was developing its own stablecoin.