Blockchain / FINTECH Service
Only a few new overseas blockchain/crypto asset-related companies are allowed to enter into Japanese Market, and successful cases are through the acquisition of existing companies and businesses for institutional investors.
If you explore registering the Crypto-asset Exchange Service it is necessary to have a detailed entry strategy with a joint venture scheme with a Japanese company. In that respect, we can support alliances between overseas and domestic businesses through our financial business network, including major domestic financial institutions.
We have a track record to register the Crypto-asset Exchange Service for the Client.
The Crypto-asset Exchange Service
From 2016 to 2017, Japan was a leading region in the crypto-currency business in administrative regulation. Today, Japanese crypto-currency business licenses have high credibility.
We provide a wide range of consulting services for registration and regulatory compliance of the Financial Instruments and Exchange Act and the Payment Service Act.
It is known for strict examination for virtual currency-related businesses registration such as Bitcoin. We have experience supporting the registration of the “Virtual-currency Exchange Service (currently Crypto-asset Exchange Service).”
It is essential to have the expertise to complete the set of the Crypto-asset Exchange Services, from application to registration and supporting operation after the registration under such strict regulation.
In addition to supporting the registration of the Crypto-asset Exchange Service we can support
- the registration of the Type I Financial Instruments Business for
- crypto asset-related derivative transactions,
- The Investment Advisory and Agency Business registration related to crypto
asset-related derivative transactions, - ICO advisory
- Assisting the correspondence with relevant authorities after registering
We have abundant experience and knowledge regarding the support of the “virtual currency business,” with one of the best consulting services track records.
Our Special Feature
We have a track record of registration for the Crypto-asset Exchange Service and investment-type crowdfunding (Type II Financial Instruments Exchange Business and Electronic-application-style Electronic Public Offering Services), only a few companies in Japan. Furthermore, as one of the highest-level consultants for FINTECH business in Japan, we interact with many FINTECH venture companies on a daily basis.
As an advisor of a Crypto-asset Exchange Service operator we support them in a wide range of services such as “negotiation with authorities,” “establishment of the internal management system,” and “Practical Advice.”
Crypto-asset related derivative transactions
Due to the revision of the Financial Instruments and Exchange Act and the Payment Service Act in 2019, the “virtual currency” used in the Payment Services Act has changed to “crypto-assets.” In addition to strengthening various regulations, the amendment incorporates some Blockchain-related Businesses into the Financial Instruments and Exchange Act regulation system.
The electronic records transfer rights (security token) offering is regulated as a Financial Instruments Business.
In addition, as crypto-assets are treated as one of the Financial Instruments, the crypto asset-related derivative trading business is now classified as the Type I Financial Instruments Exchange Business. The Crypto-currency related derivative transactions mean crypto-currency futures transactions such as the “Bitcoin FX.” Therefore, the existing Type I Financial Instruments Exchange Business Operator must register to carry out the crypto-asset derivatives business.
Besides, investment advisory and agency businesses must register as the Investment Advisory and Agency Services related to crypto-asset derivative transactions.
Requisition for Crypto-asset Exchange Service registration
It is necessary to register to carry out the Crypto-asset Exchange Service with a preliminary examination.
On the Financial Services Agency website, there is “Process and time guideline for examination for a new application of Virtual currency Exchange Service” According to the information, it takes about 6 months since the start of the primary process, but it will likely take more than 1 year in practice. In addition, the examination practice is described in “Main issues on the examination of the Virtual Currency Exchange Service registration” and “Questionnaire on registration of the Crypto-asset Exchange Service”
In addition, the actual examination is conducted not only for the items described in the questionnaire but also a wide range of contents such as organization and financial positions.
Key Points
Not a Problematic Currency
“Not a problematic currency” means that it is not a proprietary currency that is problematic (does not meet the requirements of crypto-currency) or fraudulent from the viewpoint of relevant authorities. Crypto-currency assets (that can sell) are defined in the White List. Registration for handling virtual currencies, not in the White List is extremely difficult.
During the ICO craze in the past, original virtual currencies, that is, liquidity or sales method, seemed to be quite uncertain from a legal point of view, were actively issued. It would be challenging to get the Financial Services Agency’s approval to handle such problematic original virtual currencies.
Besides, even dealing with existing (registered) Crypto-asset Exchange Service Operator the Financial Services Agency has a de facto examination during the notification process. It is impossible to sell any currencies (including your currency) even if you have a license. There is a strict examination for own crypto-currency, same as business registration.
NFT tokens, which have been popular in recent years, maybe considered as crypto-assets. The tokens must be white-listed n such a case.
Segregation Management System
The “Segregation Management System” is the issue of how to separate and store customer’s assets. A customer’s money should deposit at Trust Account and so-called “Cold Wallet” is required by law. The issue is how to store the customer’s crypto assets. It is essential to ensure technically appropriate security.
“System Stability” is whether the systems used in the Crypto-asset Exchange Service especially for customers, operate stably. Especially in the case of exchanges, system failures will directly lead to customer loss. Therefore, the Financial Services Agency examines strictly whether the company has a system that does not cause such issues, and the company can take all possible measures if it happens.
The Financial Services Agency will strictly examine the current segregation management system for overseas companies, whether it is sufficient or not.
System Professional
“There is a system professional” means whether there are personnel who have the knowledge to maintain and manage the system properly to ensure the system stability. The qualification requirement is high. It is not allowed to entirely outsource to an overseas affiliated company and no person in charge in Japan.
Even though outsourcing is permitted, it is necessary to appoint a person in charge of system management in Japan. It is essential to have a professional who can take care of the system in Japan and an organization to maintain and manage the system.
System Security
After the Coin Check criminal case in 2018, it is required to take more advanced cyber security measures than before. It is essential to understand the level of cyber security required by the Financial Services Agency for registration.
Compliance Organization
“Holding compliance organization” means whether the company is ready to comply with relevant laws and regulations such as the Payment Service Act. In the past, it is possible to assign a person with legal experience or entrusting assistance to a law firm, but now it is not allowed to do so.
It is required to assign a full-time compliance officer who has knowledge and experience in compliance related to the banking and financial instruments business.
The “AML / CFT process” is whether appropriate measures can be taken to prevent money laundering and terrorist financing, including compliance with Act on Prevention of Transfer of Criminal Proceeds. Crypto-Currencies, especially Bitcoin, have a history of being used for underground remittances and storage of secret funds by taking advantage of its anonymity. The relevant authorities are greatly concerned about those issues.
Therefore, a higher level of the system is required to prevent money laundering than other financial instruments businesses. In any case, the actual review process requires answering hundreds of questions in writing. It is essential to understand the meaning and intent of each question and reply with appropriate answers.
Difficulty of Registration
As of 2021, the new registration of the Crypto-asset Exchange Service and Crypt-asset-related Derivative Transaction Service are difficult except for financial institutions or companies with significant capital. After the Coin Check incident, there is no case to register with several JPY 10 million equity capital. At least hundreds of millions of yen are required for capital. It will be applied for any business form as long as the Crypto-asset Exchange Service.
In addition, registration is not easy, even if the Crypto-asset Exchange Service Provider has a capital of several hundred million yen. The most recent newly registered Crypto-currency Exchange Service is backed by shareholders with the capital of billions or hundreds of billions. Besides, they have many professionals who have worked for leading financial institutions for many years. The Financial Service Agency will not deal with companies with many staff with working experience in banks and securities companies.
Therefore, it is unlikely that an independent SME can enter the Crypto-asset Exchange Service. If you wish to register for the Crypto-asset Exchange Service, it is practical to seek capital participation and staff support from large companies and financial institutions as a partner to build a system and organization for registration.
