The Japanese Financial Services Agency has proposed an 'encryption asset intermediary license' to provide a low-threshold compliance standard for VASPs other than exchanges.

Japanese Finance Minister Kato Katsunobu announced in his speech on the 7th that he will review and adjust the current regulations on remittances ( and payment services to adapt to the digital transformation of finance. At the Financial Affairs Committee on the 12th, specific reform measures include asset protection for exchange users and the Stablecoin framework.

The Treasury proposed a comprehensive reform plan covering encrypted assets and Stable Coin

At the Financial and Financial Committee, the Director of the Market Office, You Buzhi, announced a comprehensive institutional reform plan covering crypto assets and stablecoins. This plan is formulated based on the discussion results of the Financial Audit Committee, aiming to provide a more flexible regulatory framework for emerging technologies and business models while safeguarding the rights of users.

Cryptocurrency exchange operators are required to custody user assets domestically.

One of the most watched measures in the reform is the implementation of the 'Asset Domestic Custody Order' for ), mainly exchange operators (. This regulation is a lesson from the bankruptcy of the global cryptocurrency exchange FTX in 2022, aiming to strengthen user asset protection and reduce the risks associated with the closure of trading platforms. This move is expected to enhance market transparency and investor confidence.

Cryptocurrency intermediaries will become independent entities, reducing market entry barriers

Another major change is to allow intermediaries for the buying and selling of crypto assets to become independent businesses. In the past, even if only engaged in intermediary services, operators still needed to obtain a full license for the crypto asset exchange business, leading to overly high market entry barriers.

The new system will establish specific regulatory standards for intermediaries, enabling them to operate within a more efficient regulatory framework.

This adjustment is expected to attract more businesses into the market, especially companies with large customer bases such as gaming companies and telecom operators. For example, NFT transactions within gaming applications, or payment services based on cryptographic assets, may accelerate as a result.

What is the cryptocurrency intermediary license in Japan?

Why is the FSA considering introducing a new cryptocurrency intermediary license

The Japanese Financial Bureau has long received requests from various sectors, especially game companies and telecommunications companies, hoping to facilitate the trading of cryptocurrencies and Stable Coins in their applications )App( and non-custodial wallets )Non-Custodial Wallet(. However, under current regulations, such intermediary activities often require applying for a full Virtual Asset Service Provider )VASP( license, which is a significant barrier for many companies.

The FSA has begun to re-examine existing rules and emphasizes that the key factor in determining whether a license is needed is not just the scenario in which the transaction occurs (e.g. gaming apps or exchange platforms), but the intermediary role of the operator in the transaction process. This has led to discussions about a new intermediary license to adapt to market demand while ensuring compliance and safety.

What is the difference between the new intermediary license and the VASP license?

Currently, operators with a complete VASP license can provide complete services such as storage, trading, and exchange of cryptographic assets. However, the new proposed intermediary license )Brokerage License( will only focus on pure intermediary business, with its core features including:

Intermediaries only serve as a bridge for trading, reducing regulatory risks, and do not allow holding user assets.

Focus on user protection and advertising regulations: Ensure that consumers have access to transparent and fair information

Establish regulatory link with VASP: Intermediaries must cooperate with registered VASP to assume supervisory responsibilities and potential compensation obligations.

Lower financial requirements: Compared to VASP licenses, the financial threshold for intermediary business will be lower, allowing more companies to enter the market

This adjustment can not only reduce regulatory burdens but also promote market innovation, making Web3 services easier to integrate into various application scenarios.

Intermediaries must establish a compensation mechanism attached to a specific exchange.

According to the report of the Fund Settlement System Working Group of the Financial Review Council in November 2023, the new intermediary will adopt the "affiliation system" and must operate under the supervision of specific cryptocurrency exchange. This means that if the business of the intermediary causes damage to users, the affiliated exchange will be liable for compensation. This move aims to balance innovation and user protection, and reduce potential risks.

Regulatory adjustments for Stable Coin, making trust asset utilization more flexible

In the stablecoin field, the Japanese government also plans to adjust relevant regulations to expand the asset support scope of trust-type stablecoins. Under the new plan, the reserve assets of future stablecoins can include highly secure short-term government bonds and specific fixed-term deposits, providing issuing institutions with more flexible fund management options, and ensuring the stability and redeemability of stablecoins.

Minister of Finance: Balancing User Protection and Financial Innovation

Regarding this system reform, Minister of Finance Katsunobu Kato stated, 'Through this regulatory adjustment, we hope to establish a digital payment environment that is both secure and highly convenient for users.' This demonstrates that the government aims to bring more innovative opportunities to the market while strengthening regulation.

Subsequent developments: Legislative amendments promote reform implementation

In the future, the Financial Hall will gradually implement these reform proposals as laws in the form of the 'Trust Business Act Partial Amendment Bill' and the 'Fund Liquidation Act Partial Amendment Bill.' How these changes will affect the Japanese digital financial market is worth the continuous attention of the industry and investors.

This article first appeared on ChainNews ABMedia. The Japanese Financial Services Agency proposes a 'cryptocurrency intermediary license' to provide low-threshold compliance standards for VASPs other than exchanges.