REGULATIONS

Crypto Travel Rule
in

Japan

by

The Financial Services Agency

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Travel Rule required from
Travel Rule regulation still pending
April 1, 2022

Japan's regulators have addressed the cryptocurrency industry since as early as 2017, being the first to introduce a legal definition of "virtual currency" (in the Payment Services Act). The primary financial regulator in Japan, the Financial Services Agency, recognizes and works closely with two self-regulation entities that support fostering the regulatory framework applicable to the crypto industry - the Japan Virtual Currency Exchange Association (JVCEA) and the Japan Security Token Offering Association (JSTOA). VASPs in Japan are expected to consider already how to implement the Travel Rule appropriately. Still, JVCEA's self-regulatory rules regarding the subject are only expected to come into force in April of 2022.

Is cryptocurrency legal in Japan?

Yes, cryptocurrencies are legal in Japan. The Payment Services Act defines "crypto-assets" as payment methods that are not denominated in fiat currency and can be used to pay unspecified persons. There are no restrictions on owning and investing in cryptocurrencies.

Are there any AML crypto regulations in Japan?

Yes. Exchange Providers in Japan are subject to the anti-money laundering regime outlined in the Act on Prevention of Transfer of Criminal Proceeds. This framework is further specified by the Guidelines for Anti-Money Laundering and Combating the Financing of Terrorism, in force since February 19, 2021.

The Payment Services Act defines Exchange Providers as entities that carry out any of the following crypto-asset exchange services as a business:

  1. Sale, purchase and exchange of crypto assets;
  2. Intermediating, brokering or acting as an agent in activities mentioned in 1;
  3. Management of customer's money in connection with activities mentioned in 1 or 2;
  4. Management of crypto assets for the benefit of another person.

Who regulates cryptocurrency in Japan?

In Japan, the Financial Services Agency (FSA) is responsible for supervising crypto asset exchange service providers. However, the FSA recognizes and works closely with two self-regulation entities for the cryptocurrency industry: the Japan Virtual Currency Exchange Association (JVCEA) and the Japan Security Token Offering Association (JSTOA)

The JSTOA focus on token offerings and other crowdfunding events. The JVCEA has a mandate to create rules and policies applicable to cryptocurrency exchanges.

Who is the Crypto Travel Rule Regulator in Japan?

The crypto travel rule will be implemented in Japan through self-regulatory rules enacted by the Japan Virtual Currency Exchange Association (JVCEA) - a self-regulation entity responsible for creating rules and policies applicable to cryptocurrency exchanges in Japan.

Are there licensing or registration requirements for VASPs in Japan?

Japan's Payment Services Act requires providers of crypto asset exchange services to register with Financial Services Agency. The following acts qualify as crypto asset exchange services:

  1. Sale, purchase and exchange of crypto assets;
  2. Intermediating, brokering or acting as an agent in activities mentioned in 1;
  3. Management of customer's money in connection with activities mentioned in 1 or 2;
  4. Management of crypto assets for the benefit of another person.

FATF Travel Rule requirements in Japan

Is the Crypto Travel Rule mandated in Japan?

The crypto travel rule is expected to be mandated in Japan as of April 2022. However, as further explained below, the regulators expect VASPs to consider already how to implement the travel rule appropriately.

On March 31, 2021, the Financial Services Agency addressed a Request for Notification of Originator and Beneficiary Information upon Crypto Assets Transfer ("Request") to the Japan Virtual Currency Exchange Association (JVCEA) - a self-regulation entity responsible for creating rules and policies applicable to cryptocurrency exchanges in Japan. The Request concerns the implementation of the travel rule in Japan.

Most notably, the Request mentions that JVCEA is introducing self-regulatory rules regarding the travel rule by April 2022 and urges:

  • (i) VASPs in Japan to "***promptly proceed with consideration to the appropriate implementation of the notification of information associated with crypto assets transfer (i.e., the Travel Rule)***" and¬†
  • (ii) JVCEA to keep the industry well informed and support VASPs in making efforts towards travel rule implementation.

Why choose Notabene for Crypto Travel Rule Compliance in Japan

Notabene's solution is live and can be used by VASPs to comply with local Travel Rule requirements today. Most relevantly, through Notabene, VASPs are able to identify whether the counterparty wallet is custodial or self-hosted and take the measures appropriate to each scenario. Complying with the Travel Rule requires significant changes to VASPs' existing UX and data flows. Bearing this in mind, we allow for a staggered implementation of our solution and promote testnets for VASPs to take their first steps towards compliance in a simulated environment.

Relevant Links:

Last updated
October 12, 2021

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