On February 19, 2024, the Financial Services Agency (FSA) approved the "Fund" at the General Assembly of the Financial Review Council (chaired by Yuko Kamisaku) Reports of relevant working groups such as settlement system.

This report is the final result formed after seven rounds of discussions in response to the consultative requirements of the Minister of Finance in August 2024. The core content of the report involves a new regulatory framework for cryptocurrencies (virtual currencies) and stablecoins, especially specific suggestions are put forward for user protection when exchanges go bankrupt, the establishment of intermediary services, and the rules for asset use of stablecoins. This trend marks a further refinement of Japan's regulation in the cryptocurrency and stablecoin fields, aiming to balance innovation and risk control.

This article will focus on this from four aspects: background, main content, impact and future prospects. A new regulatory framework is provided for in-depth interpretation.

1. Background: FTX bankruptcy and user protection needs

In November 2022, the bankruptcy incident of FTX, the world's second largest cryptocurrency exchange, shocked the entire cryptocurrency industry . The FTX crash not only caused billions of dollars in user assets to lose, but also exposed the weak links in cryptocurrency exchange regulation. As an important player in the global cryptocurrency market, Japan's regulator, the Finance Department, responded quickly and began to reexamine the shortcomings of the existing regulatory framework.

Japan passed the Fund Settlement Law as early as 2017 to include cryptocurrencies in the scope of supervision and established a relatively complete exchange license system. However, the FTX incident shows that existing regulatory measures alone are still not enough to deal with extreme situations such as exchange bankruptcy. Therefore, the Finance Department launched a new round of regulatory reforms in 2024, aiming to strengthen user protection and improve market transparency.

2. Main contents of the new regulatory framework 1. Strengthening user protection when exchanges go bankrupt. The report proposes that it will refer to the relevant provisions of the Financial Commodity Trading Law. , new provisions are introduced in the Fund Settlement Act to strengthen user protection in the event of bankruptcy of cryptocurrency exchanges. Specific measures may include:

Asset isolation requirements: requires the exchange to strictly separate user assets from its own assets to prevent user assets from being used to repay debts during bankruptcy.

Priority for bankruptcy liquidation: clarify the user's priority right to compensate in bankruptcy liquidation, and ensure that user's assets can be returned first.

Information disclosure obligation: requires exchanges to regularly disclose their financial status and asset custody to enhance transparency.

These measures are designed to prevent the recurrence of similar FTX events and provide users with a safer trading environment.

Excerpted from the Financial Review Committee's "Report on the Fund Settlement System and other related working groups" 2. Establishment of cryptocurrency intermediary business

The report also proposes a new business model - cryptocurrency trading intermediary business. Such intermediaries will adopt the "affiliation system", that is, they must be affiliated with a specific exchange to conduct business. Unlike traditional exchanges, intermediary institutions do not directly custody user assets, so their regulatory requirements are relatively loose:

No property custody obligation: intermediary institutions do not directly hold it. User assets reduce the risk of misappropriation or loss of funds.

Simplified access conditions: Intermediaries do not need to meet strict property basic requirements, nor do they assume direct obligations to anti-money laundering (AML) and combat terrorist financing (CFT) .

Business scope limitations: Intermediary institutions are only responsible for buying, selling and matching, and do not involve complex businesses such as asset custody and liquidation.

The establishment of this new business model is aimed at lowering the market entry threshold, promoting market competition, and ensuring the business compliance of intermediaries through the "affiliation system".

3. Adjustment of the rules for the use of stablecoin assets

The report puts forward important adjustments to the rules for the use of stablecoin assets. According to current regulations, stablecoin issuers must deposit equivalent assets in the form of "requiring payment of deposits" in the bank. The new framework allows issuers to use some of their assets for low-risk financial products such as short-term Treasury bonds and fixed deposits:

New asset category: Stablecoin issuers are allowed to use No more than 50% of assets are invested in short-term Treasury bonds and fixed deposits.

Risk control: A 50% upper limit is set for the proportion of new asset classes to ensure that the asset reserves of stablecoins have sufficient liquidity.

This adjustment aims to improve the asset utilization efficiency of stablecoin issuers, while controlling risks through proportional restrictions.

III. Impact analysis 1. Impact on users

The biggest beneficiary of the new regulatory framework is ordinary users. By strengthening user protection measures in the event of exchange bankruptcy, users' asset security will be significantly improved. In addition, the establishment of intermediary services may reduce transaction costs and provide users with More options.

2. Impact on exchanges and intermediaries

For exchanges, the new regulations will increase their compliance costs, especially the requirements for asset isolation and information disclosure. However, these measures will also help improve the exchange's credibility and attract more users. For intermediaries For institutions, the establishment of new business formats provides small and medium-sized enterprises with opportunities to enter the market, but the "afford system" also means that their business independence is limited.

3. Impact on the stablecoin market

Adjustment of the application rules for stablecoin assets will increase the issuer's return on assets, thereby enhancing its profitability. However, the 50% ratio limit also limits the issuer's risk tolerance and ensures stability. The stability of the currency is not affected.

4. Impact on the Japanese cryptocurrency market

The new regulatory framework further consolidates Japan's position as the global leader in cryptocurrency regulation. By balancing innovation and risk control, Japan is expected to attract more international capital and projects into its market.

IV. Future Outlook< p style="text-align: left;">With the implementation of enhanced user protection measures proposed by the Finance Department, Web3 security compliance companies such as Beosin play a crucial role in this process. Beosin focuses on crypto assets The industry's security compliance provides comprehensive smart contract security audit and compliance services. Through these technical support, crypto asset service providers can operate within the compliance framework and effectively prevent potential security risks.

This new regulatory framework of the Japan Finance Agency marks a new stage in cryptocurrency and stablecoin regulation. However, with the rapid development of technology and continuous changes in the market, regulators still need to maintain flexibility and timely Coping with emerging risks.

Possible future development directions include:

Cross-border supervision Cooperation: The globalized nature of the cryptocurrency market requires regulatory agencies in various countries to strengthen cooperation and formulate unified regulatory standards.

TechnologyDriven supervision: Use tools such as blockchain technology and artificial intelligence to improve supervision efficiency and transparency.

User Education: Strengthen the popularization of cryptocurrency knowledge for ordinary users, and improve their risk awareness and self-protection ability.

The new regulatory framework approved by the Japan Financial Services Agency is an important milestone in the regulatory field of cryptocurrency and stablecoins. By strengthening user protection, establishing intermediary services and adjusting the rules for the use of stablecoin assets, Japan is promoting market innovation while also providing an important reference for global cryptocurrency regulation. In the future, with the gradual implementation of this framework, Japan is expected to occupy a more important position in the global cryptocurrency market.