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Japan FSA releases draft ordinances to implement new regulation of initial coin offerings and securities token offerings

Scope of token securities made clear

22 January 2020

The Japan Financial Services Agency (FSA) has released draft ordinances to implement the new regulation of initial coin offerings (ICOs) and securities token offerings (STOs) under the amendment to the Financial Instruments and Exchange Act of Japan (FIEA).

This is intended to bring clarity as to how fundraising using this emerging asset class is regulated in Japan.

As discussed in our June 2019 article: New regulation of Initial Coin Offerings (ICOs) in Japan, the amendment to the FIEA introduced a new definition of 'token securities' (denshi kiroku iten kenri). When interests in collective investment schemes raised by way of an ICO for investment business purposes are transferable through an electronic information processing system (i.e. when they are represented in the form of tokens), such interests will fall within the definition of 'token securities'.

The scope of token securities is made clear in the draft ordinances. If there is a technical restriction that makes persons other than qualified institutional investors (QIIs) or certain experienced investors unable to acquire the interests, then the interests do not qualify as 'token securities' and they can therefore be offered and sold without restrictions pursuant to the new ICO/STO regulations. However, such fundraising would be subject to another regulation under the amended Payment Services Act of Japan.