Japan’s FSA Unveils Financial Policy Focus for 2023:

Japan’s Financial Services Agency (FSA) released its financial administrative policy for the fiscal year 2023 on August 29, outlining key areas of focus. The policy aims to ensure that Japan’s economic activities and public life remain stable amidst changing socio-economic conditions and are geared towards future growth. 

The agency is also committed to creating a financial system that balances economic growth with the resolution of various social challenges, including climate change and digital transformation. To achieve this, the FSA will implement in-depth monitoring to ensure that financial institutions maintain their integrity while adhering to laws and regulations and focusing on customer-centric operations. 

Additionally, the FSA plans to continually evolve its financial administration by enhancing data utilization, strengthening policy communication both domestically and internationally, and improving the skills and qualities of its staff. The agency emphasizes the importance of “in-depth monitoring” to ensure that financial institutions not only comply with laws and regulations but also operate in a manner that is customer-centric. 

One of the standout points in the policy is the FSA’s commitment to addressing issues related to climate change and the advancement of digitalization. The FSA’s financial administrative policy for 2023 reflects a balanced approach to economic growth and social challenges, aiming to stabilize Japan’s economic activities and public life, build a problem-solving financial system, ensure the stability and trust of the financial system, and continually evolve financial administration.

The official announcement was made on the FSA’s website on August 29, 2023. This article is based on the official announcement by the Financial Services Agency (FSA) and aims to provide an unbiased, third-party perspective.


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Japan’s FSA Joins MAS’ “Project Guardian” as First Overseas Regulator

The Financial Services Authority (FSA) of Japan has announced its participation in the Monetary Authority of Singapore’s (MAS) “Project Guardian” initiative. This collaborative project, which was established by MAS in May 2022, aims to explore the feasibility of applying digital technologies to various asset classes while ensuring financial stability and integrity.

Under the terms of the cooperation framework, the FSA will join Project Guardian in an observer capacity, leveraging its expertise and knowledge to contribute to the project’s objectives. The initiative focuses on conducting pilot experiments, including asset tokenization, in sectors such as fixed income, foreign exchange, and asset and wealth management.

Mr. Leong Sing Chiong, Deputy Managing Director of MAS, expressed enthusiasm for the FSA’s participation, emphasizing the importance of public-private collaboration in fostering a responsible and innovative digital asset ecosystem. He welcomed the opportunity for increased cooperation with the FSA to support global efforts in this area.

Mr. Mamoru Yanase, Deputy Director-General of the Strategy Development and Management Bureau at the FSA, expressed delight at joining Project Guardian. He acknowledged the growing complexity of the decentralized financial ecosystem and the need to address emerging risks. Mr. Yanase also recognized the potential of blockchain technology, including web3, as a powerful driver of innovation. He expressed eagerness to collaborate with MAS, traditional financial institutions, and fintech firms to enhance knowledge in this rapidly evolving field.

The participation of the FSA in Project Guardian is a significant milestone, highlighting the international cooperation and commitment to exploring the potential of digital assets. As governments and financial institutions worldwide recognize the transformative power of blockchain and digital technologies, initiatives like Project Guardian are instrumental in developing robust frameworks and fostering innovation in the digital asset space.

According to MAS, the Financial Services Authority (FSA) of Japan is the first overseas regulator to join “Project Guardian.” MAS stated, “MAS is also pleased to welcome the Japan Financial Services Agency (JFSA) as the first overseas financial regulator to join Project Guardian. This paves the way for MAS and the JFSA to collaborate on digital asset innovation and best practices for asset tokenization, while safeguarding against risks to financial stability and integrity.”


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Japan to Adopt New Stablecoin Regulations

A local financial body in Japan has said that the country’s new legislation that will let investors to trade using stablecoins such as Tether (USDT) are scheduled to be approved no later than in June 2023 at the very latest.

The Financial Services Agency (FSA) of Japan is working on removing the restriction on the domestic distribution of stablecoins and has tentative plans to make this change before the end of the year for certain stablecoins.

The spokesman for the FSA noted that the organisation would only approve stablecoins that are successful in passing individual inspections designed to ensure that such cryptocurrencies are protected from the perspective of user protection.

The representative went on to say that other examples include international issuers in their own countries being subject to identical restrictions in Japan, with underlying assets being safeguarded in an acceptable manner.

Additionally, the authorities emphasised that there is no possibility of knowing if major stablecoins like as Tether (USDT) or USD Coin (USDC) would be permitted. This point was emphasised several times. According to the spokesman, “FSA does not give any option to obtain such material before the decision is taken.”

The new stablecoin laws that have been suggested for Japan are included in the proposed cabinet orders and cabinet office ordinances that are related to the change to the Payment Services Act of 2022.

The new regulations are going to be implemented in December 2022, and its primary goals are to lay out the standards for electronic payment instruments and create the registration processes that are associated with them.

The official data indicates that the FSA will continue to take public opinions about the modifications to the Payment Services Act through the 31st of January in 2023. A spokeswoman for the FSA said that the specific date has not yet been agreed upon since the regulation is planned to be published and implemented via the relevant processes once the closing of the public comment period.

FSA said that the deadline for law enforcement is going to be at the beginning of June.

According to earlier reports, the Diet of Japan has approved a measure that will go into effect in June 2022 and prohibit the use of foreign stablecoins. The bill also requires stablecoin issuers to connect their cryptocurrencies solely to the Japanese yen or another legal denomination.

It would seem that a number of cryptocurrency companies have been adversely affected by the new regulations, since none of the 31 Japanese exchanges that are registered with the FSA have subsequently provided stablecoin operations. The legislation is scheduled to go into force in 2023.

Because of the lacklustre state of the cryptocurrency market in Japan, a number of prominent cryptocurrency exchanges, including Coinbase and Kraken, have recently suspended their operations there.


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Japanese government considers relaxing strict coin listing rules

The Japanese government is considering a proposal to make it easier for registered crypto exchanges to list digital assets in the local retail trading market.

Sources quoted in Bloomerg said that if the new rules are passed, exchanges that have registered with the Financial Services Agency (FSA) would be able to list certain assets without performing a lengthy screening process.

Digital assets that have been listed for more than six months on at least three domestic exchanges would be exempted from additional screening. For example, exchanges would find it easier to list Bitcoin (BTC) and Ether (ETH) if the proposal passes.

There has not yet been a final decision on the rule change.

Current listing rules require prospective coins to undergo an extensive screening process which can take over six months to complete. Members of the Japan Virtual and Crypto Exchange Association (JVCEA) have complained that the stringent screening process has precluded the $1 trillion Japanese crypto industry from growing in a significant way.

Members of the JVCEA have reportedly argued that changing the existing rules to allow for expedient processing could increase Japanese involvement in the global crypto markets.

As of now, Coincheck and GMO Coin have 17 listed coins each, making them the biggest exchanges in Japan by number of listings. Japanese exchanges have lagged far behind global exchanges which have coins listed by the hundreds in the case of top exchanges such as Coinbase and Binance.

The proposed rules come at an interesting time as both Coinbase and FTX have entered the competitive Japanese crypto market with subsidiaries registering crypto exchanges.

Related: Major crypto exchanges eye Asian market amid growing regulatory clarity

On Feb. 2, Sam Bankman-Fried’s FTX exchange acquired Liquid Group, the operator of the Japanese registered Quoine crypto exchange. Quoine will eventually eventually “integrate FTX’s existing products and services into its own offerings.”

Last August, Coinbase partnered with Mitsubishi UFJ Financial Group (MUFG) to launch a branch of its exchange. The partnership with MUFG provides users with a fiat on-ramp and off-ramp.