The crypto-friendly nation of Japan has once again set the par for the course after announcing significant upgrades to their Initial Coin Offering (ICO) framework. The country was among the first to acknowledge cryptocurrencies and now, they have paved the way for further expansion of the security token sector.
Japan’s Financial Services Agency amended both the Act on Settlement Funds and the Financial Instruments and Exchange Act (FIEA). These changes include a slew of new regulatory requirements for those hosting ICOs that function similarly to securities. Now, these ICOs fall directly under the current securities regulations according to FIEA
The new classification means Japanese STOs must adhere to strict registration requirements. These requirements include items such as semiannual reporting and maintaining records of management personal. Additionally, Issuers must explain the mechanics of their token issuance, transfers, and settlements.
More Labor Intensive STOs
The “token mechanics” description clause has some businesses worried that the new security token issuance amendments create more harm than good. Some analysts predict that the necessary disclosure documents could be more expensive than traditional securities. Also, these disclosures could cause more delays for business seeking to gain access to capital via a blockchain-based strategy.
Importantly, the extra workload wasn’t added by mistake. Japanese officials continue to express concerns over monitoring the secondary security token markets. Officials worry that it will be difficult to prevent unauthorized transfers of security tokens.
Basically, officials believe the added efficiency and speed makes it somewhat too easy to transfer tokenized securities versus traditional securities. For example, Japanese officials recommend all private placement STOs utilize a password-protected site to avoid violating securities solicitation rules. Such as offering tokens to non-disclosed investors.
All token issuers must register for new licensing as part of the amendments. For example, companies seeking to issue security tokens via their own network must register as a Type-II business. As a Type-II entity, these firms will need to follow the strict staffing and governance models laid out in the new amendments.
Companies that opt to use a Broker-Dealer, versus issuing their own token, can avoid many of the registration requirements demanded from Type-II issuers. However, these Broker-Dealer firms must be registered as a Type I issuer. These regulations include handling submission of the token mechanics surrounding the STO on behalf of the business.
Japan – Crypto Ambitions
Japan recognized cryptocurrencies officially on April 1, 2017. In September 2017, the country recognized Bitcoin exchanges as legitimate businesses and enacted one of the first regulatory frameworks in the world. By October of that same year, Japanese officials actively began recruiting blockchain-based businesses. Today, many point to Japan’s foresight as one of the most important factors determining the fate of Bitcoin’s future
Japan Tightens the Belt
While Japan’s new regulations do place a larger workload on businesses entering the security tokens sector, they are seen by many as a necessary step towards the digitization of the economy. Japan remains at the forefront of the crypto revolution and, these latest amendments confirm that the land of the Rising Sun has no plans to shy away from blockchain investors.