Japan's Financial Services Agency begins review of fund settlement law for the fintech era, including cryptocurrencies and stablecoins

On the 25th, the Financial Services Agency held the first meeting of the Financial System Council's working group on amending the Payment Services Act. In response to the diversification of financial services that are becoming increasingly digitalized, the committee aims to balance user protection with sound market development.
The working group will develop a system that can respond to the rapidly evolving financial business, including crypto assets (virtual currencies), stable coins and other "decentralized finance," cashless payments, and fintech.
The government will consider the design of the system. The government aims to ensure the stability and competitiveness of Japan's financial system while taking into account international trends. Of particular interest is the strengthening of regulations on cryptocurrency exchanges.
Learning from the lessons learned from the collapse of FTX in November 2022, measures are being considered to allow for domestic asset holding orders under the Payment Services Act. The plan is to strengthen protection of user assets in the event of a broker's bankruptcy.
There was also a discussion on stable coins that could lead to their promotion. Currently, certain trust-type stable coins are subject to the same regulations as bank deposits, but overseas, there is more flexibility in the management of the underlying assets.
There are also cases where crypto assets and stable coins are being given certainty. Regulations are also being reviewed in Japan. However, concerns have been raised about the risk of price fluctuations and money laundering regarding crypto assets and stable coins.
There is also a risk that general users will confuse the new system with existing financial products. In the discussions on the amendment of the Payment Services Act, the Financial Services Agency is trying to strike a balance between prioritizing user protection and not hindering innovation.
The Fund Settlement Act came into force in 2010 and regulates electronic money, authorizes remittance services by businesses other than banks, and establishes an interbank settlement system.
The main purpose of the law was to improve the system. Since then, the law has been revised in stages to accommodate the evolution of financial technology. In 2017, virtual currencies (later renamed "crypto assets") were made into a new payment method.
The 2023 amendment defines stablecoins as "electronic means of payment" and makes them eligible for regulation, allowing them to be issued domestically.
The Working Group aims to respond to these changes in the environment surrounding payment and settlement and to establish a more appropriate regulatory framework.
According to a report in the Nihon Keizai Shimbun, the government is considering submitting a bill to amend the law to the regular Diet session in January 2025.