Japanese financial regulator issues warning over ICO

According to Japan's financial regulator, ICOs may fall under the requirements of the law on payment services and the law on financial instruments and exchanges
30 October 2017   306

The conduct of the initial coin offering (ICO) in Japan can be regulated by several existing laws. This is stated in the official statement of the Agency of Financial Services of Japan (FSA).

As the regulator explained, depending on its structure, ICOs may fall under the requirements of the law on payment services and the law on financial instruments and exchanges.

A certain token issued in an ICO falls under the virtual currency on the Payment Services Act, therefore the businesses which provide exchange services of virtual currencies on a regular basis must be registered with each Local Finance Bureau that is delegated authority to by the Prime Minister. If an ICO has the characteristics of an investment and the purchase of a token by a virtual currency is practically deemed equivalent of that by a legal tender, the ICO becomes subject to regulations under the Financial Instruments and Exchange Act.
 

Japanese Financial Services Agency statement

Such a position of Japan's financial regulator is in many ways similar to the position taken by the Securities and Exchange Commission (SEC) last summer. 

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Swiss Regulators Published ICO Guidelines

The Swiss Financial Market Supervisory Authority FINMA published today initial coin offering (ICO) guidelines  
16 February 2018   160

The guidelines set out how it intends to apply financial market legislation in handling inquiries from ICO organizers. According to it, regulators will oversee and regulate ICOs anti-money laundering laws.

FINMA clarifies how token issuers should proceed in the country. The regulator also stated that there is a sharp increase in the number of Switzerland-based ICOs. This led to questions about applicable regulations.

The press release noted that financial market law and regulation aren’t applicable to all ICOs. Each case must be decided on its individual merits.

The regulations will be based on economic function and purpose of the tokens issued by the ICO organizer. Due to the fact that there is no generally recognized terminology for the classification of tokens in the world,  FINMA categorizes tokens into three types:

  • Payment tokens are synonymous with cryptocurrencies and have no further functions or links to other development projects.

  • Utility tokens are tokens which are intended to provide digital access to an application or service.

  • Asset tokens represent assets such as participation in real physical underlyings, companies, or earnings streams.  

FINMA will handle ICO inquiries according to three different categories, based on the type of tokens they’ll be issuing.

  • Payment ICOs (payment tokens), that issue tokens that are transferable and function as means of payment.

  • Utility ICOs (utility tokens), that will not qualify as securities, as long as their purpose is to confer digital access rights to an application or service. If a utility token functions as an investment in economic terms, it will be treated as a security.

  • Asset ICOs (asset tokens), that issue tokens that will be seen as securities. This means they’ll be treated like equities or bonds. These will be subject to strict requirements.

Our balanced approach to handling ICO projects and inquiries allows legitimate innovators to navigate the regulatory landscape and so launch their projects in a way consistent with our laws protecting investors and the integrity of the financial system.

Mark Branson

FINMA CEO