Japan Set to Ease Stablecoin Rules, Allowing New Backing Methods and Reducing Compliance Burdens for Intermediaries

Japan is set to ease regulations on stablecoins and crypto transactions. The Financial Services Agency (FSA) gave its approval to a report that suggests

Japan is easing regulations on stablecoins and crypto transactions. The Financial Services Agency (FSA) has approved a report that proposes changes to current statutory regulations. These amendments aim to both enhance financial adaptability and protect digital asset ownership for users.

The payment-related proposal spans two key legislations: the Trust Business Act and the Payment Services Act. Currently, Japanese law classifies crypto assets as a digital payment instrument. Local crypto businesses have expressed difficulties operating due to restrictive safety measures implemented by regulators. The government now aims to restore simplicity to crypto asset business operations.

The Financial System Council adopted the report following sessions held between August 2024. The discussions analyzed rules connected to payment service operations, remittances, and stablecoin and cryptocurrency standards.

Previously, businesses involved in crypto transaction mediation were required to register under strict guidelines, even if they did not handle user assets. This regulation aimed to ensure compliance with anti-money laundering rules. However, the stringent requirements hindered the entry of new businesses into the crypto market.

To address this issue, the FSA proposed introducing a new category of “intermediary business.” This classification would allow for more flexibility in compliance standards.

Intermediaries who do not hold client assets will be exempt from rigorous financial requirements. Crypto exchanges and issuers will still be responsible for user fund security measures, but registration requirements will no longer extend to all firms involved with cryptocurrencies. This change could open up the market for game firms and digital wallet companies.

The framework under consideration also revises the criteria on which backing stablecoins can be based. Existing regulations only permit demand deposits as the backing method for stablecoins.

Under the new proposal, stablecoin issuers can maintain their reserves with both short-term government bonds and fixed-term deposits. To ensure the stability of the financial sector, stablecoin issuers will be permitted to use these new assets for backing purposes up to a maximum of 50%.

These modifications aim to provide stablecoin issuers with greater fund management capabilities. However, to achieve user security, the implementation of additional protective structures will be necessary.

Following the approval of the report, the Financial Services Agency will begin carrying out the necessary legal modifications. The Trust Business Act will be revised, and the Payment Services Act will be amended.

Finance Minister Katsunobu Kato expressed support for the plan, highlighting the need to establish a digital payment system that ensures both safety and efficiency.