Cabinet decision on "Bill to amend the Payment Services Act"

Cabinet Decision on Amendment to the Payment Services Act: Deregulation of stablecoins, creation of new cryptocurrency "intermediary business," and regulation of cross-border collection agencies

On March 3, the government introduced a bill that includes the creation of a new "intermediary business" in the cryptocurrency sector, deregulation of trust-type stablecoins, and the introduction of regulations on cross-border collection agency services.Proposal for amendment to the Payment Services ActThis was approved by the Cabinet and submitted to the Diet on the same day.
The purpose of this amendment is to ensure user protection and promote innovation while responding to the advancement of digitalization in finance.
The main changes and their aims are explained below.

Relaxation of regulations on backing assets for trust-type stablecoins

First,Stablecoins(Crypto assets with stable prices)Trust-based stable coinThe regulations regarding this will be relaxed.
Until now, depositors had to provide the same amount of backing assets as the amount of the issue.Regular savings and current accounts that can be withdrawn at any timeThe entire amount had to be held as a demand deposit.

The proposed amendment relaxes this requirement, allowing a portion of the assets to be held and invested in government bonds or time deposits, up to a maximum of 50% of the issuance amount, as long as the principal is not impaired.
Specifically, investments in Japanese government bonds and US government bonds with remaining maturities of three months or less, and term deposits that can be cancelled at any time are permitted.
The government aims to strengthen the international competitiveness of Japan's stablecoin business by allowing a certain amount of government bonds and time deposits as backing assets.

Previously, stablecoin issuance in Japan was slow as all backing assets had to be cash equivalents, but with deregulation, it is expected that issuance will be considered while assessing domestic and international conditions.
A trust-based stablecoin is a stablecoin in which the issuer entrusts the underlying assets to a third party such as a trust bank, and the value of the coin is stabilized through this trust scheme.

Establishment of new cryptocurrency "brokerage" business lowers barriers to entry

The proposed amendment will create a new business category called "brokerage" for cryptocurrency transactions.

Currently, even if a service is simply provided to match exchanges (cryptocurrency exchange businesses) with users, it is necessary to register as a cryptocurrency exchange business with the Financial Services Agency and to be subject to capital requirements and various other regulations.
After the amendment, such pure intermediary (broker) businesses will only need to register as a newly established "cryptocurrency intermediary business," and because they do not hold users' assets, they will no longer be subject to financial requirements or anti-money laundering regulations.

This is expected to reduce the burden on businesses and significantly lower the barrier to entry into the cryptocurrency business.
In fact, according to the Nikkei Shimbun, several companies, including Mercari, SBI Securities, and Monex Securities, have expressed interest in entering the intermediation business, and deregulation may lead to greater diversification of cryptocurrency trading services.
The creation of this new intermediation category is a measure aimed at expanding business opportunities in Japan's cryptocurrency industry and improving convenience for users.

Application of regulations to cross-border collection agency services

On the other hand, the regulation has been in a grey area until now.Cross-border collection agencyNew regulations under the Payment Services Act are expected to apply to cross-border collection agency services.
For example, a service in which a payment agent for an overseas e-commerce site receives payment from customers in Japan and transfers it to an overseas seller has previously not been considered a money transfer business (remittance service) depending on the business scheme, but was sometimes treated as a "collection agency."

The proposed amendment includes suchCollection agency where payer and payee are located in different countriesRegarding international remittances, the government has announced a policy to make those services that perform functions similar to those of international remittances conducted by banks and money transfer businesses subject to foreign exchange transaction regulations (regulations on remittance services) and to require registration as a money transfer business.
In other words, the aim is to impose regulations on services that handle flows of funds that are essentially the same as overseas remittances, and to prevent unauthorized acts that resemble overseas remittances.
This regulation has been introduced from the perspective of protecting users, by preventing misuse for fraudulent remittances such as money laundering and bank transfer fraud, and preventing user problems via overseas businesses.

On the other hand, regular EC payments and in-store paymentsServices where the transaction debt is extinguished when the consumer pays the priceSince the system is also intended to contribute to consumer protection, care must also be taken to ensure that it does not unnecessarily discourage existing businesses.
Going forward, the scope of exemptions and specific criteria are expected to be determined through government ordinances and guidelines, and it is hoped that sufficient coordination will be achieved among the relevant parties to ensure that regulations are appropriate to the risks involved.

Diversification of methods for returning funds in the event of the bankruptcy of a money transfer business operator

The proposed amendment includes provisions to the extent that in the event that a money transfer business operator (remittance service provider) goes bankrupt,A mechanism for quickly returning user fundsIt also includes measures to introduce
Under the current Payment Services Act, money transfer businesses are obligated to protect the full amount of user funds they receive through deposits with the Legal Affairs Bureau, bank guarantees, or trusts.
However, in either case,It will take at least 170 days for the funds to be returned to users.The reality is that, in the event of a business operator's bankruptcy, it has been pointed out that the inability to quickly and reliably repay funds to users is an issue.

In particular, in recent years, the practice of transferring wages to the accounts of money transfer business operators (paying wages in digital money) has become institutionalized, and there is a demand for the prompt return of funds used to receive wages.
In order to address these issues, the proposed amendments would require the bankruptcy of a money transfer service provider.A new way to return funds directly to usersIt is proposed to introduce

Specifically, we will utilize the mechanisms of guarantee agreements and trust agreements that are used to preserve funds,Direct repayment by the guarantor (e.g. a prudential bank),Direct refund from the trustee (trust company, etc.) to the userIt is a system that makes this possible.
This means that even if a business goes bankrupt, users will be able to receive repayment of their funds more quickly and safely than before.
If the guarantee agency or trust company refunds the money directly, users can get their money back quickly without having to go through complicated legal procedures.Significantly strengthening user protectionIt is expected to lead to

In the future, rules are expected to be established to ensure that the new system is operated appropriately, such as requiring banks and other financial institutions that act as guarantor institutions to have sufficient financial soundness and designating professionals such as lawyers and certified public accountants as agents of trust beneficiaries.

Strengthening investor protection in the event of a cryptocurrency exchange's bankruptcy

In the cryptocurrency field, when a trading company (exchange company) goes bankrupt,User Asset ProtectionReforms will also be made to strengthen the
The proposed amendment includes an order to keep customer assets in Japan in the event that a cryptocurrency exchange goes bankrupt, so that the exchange cannot transfer the assets to a foreign country without permission.Order to retain assets in JapanThe new law includes provisions that allow for the issuance of a Notice of Intent on Prohibition of Foreign Affairs (POFA)​.

This measure is based on the case when the major US exchange FTX suddenly collapsed in 2022, and Japan issued a domestic asset preservation order against its subsidiary FTX Japan, preventing user assets from being transported overseas.
At the time, such orders could only be applied to businesses that dealt in derivatives (financial derivative products), but the amendment will allow them to be issued to cryptocurrency exchanges that only handle spot trading.

The aim of this is to thoroughly protect investors' assets by establishing a system in which users' assets can be managed and returned domestically, rather than being taken overseas, even if a domestic cryptocurrency exchange goes bankrupt.
As the cryptocurrency market becomes increasingly globalized, it is expected that by establishing a legal framework to quickly protect user assets in Japan, an environment will be created in which users can trade with greater peace of mind.

Conclusion

The proposed amendments to the Payment Services Act seek to strike a balance between enhancing international competitiveness in the fields of cryptocurrencies and digital money while also ensuring user protection.
While the relaxation of stablecoin regulations and the creation of new intermediary businesses are encouraging new entrants and technological innovation, risk management is also being strengthened by introducing regulations on cross-border collection agencies and establishing rules for the return of funds in the event of a business failure.

The government is expected to finalize specific operational rules through the formulation of relevant cabinet orders and ministerial ordinances and the development of industry guidelines.
If the revised bill is passed, Japan's payment and cryptocurrency systems will progress to a new stage, and users can expect a service environment that is both convenient and secure.

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