Japan’s FSA Aims To Shield Domestic Assets With New Crypto ‘Holding Order’
Japan’s Financial Services Agency (FSA) is reportedly drafting regulations aimed at protecting domestic assets from potential risks tied to foreign-based cryptocurrency exchanges.
Following the collapse of the high-profile FTX exchange, which impacted investors worldwide, the FSA seeks to establish a “holding order” under Japan’s Payment Services Act, according to a 6 November 2024 report from Mitrade.
The new mandate would restrict cryptocurrency exchanges from transferring Japanese customers’ assets overseas, providing an added layer of security in the event of another exchange failure.
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Japan Changes Regulatory Approach To Digital Assets
The proposed holding order, which would apply to all exchanges registered under the Payment Services Act, represents a shift in Japan’s regulatory approach.
💥BREAKING💥
Japan’s FSA proposes a tax cut taxes on #crypto profits from 55% to 20% and allow loss carryovers pic.twitter.com/pmsCkdx4wI
— Quinten | 048.eth (@QuintenFrancois) September 4, 2024
Previously, such restrictions only applied to firms registered under Japan’s Financial Instruments and Exchange Act. However, if the legislation is amended, the FSA could extend asset-protection measures across all crypto exchanges operating within Japan’s jurisdiction, regardless of their headquarters.
The proposed changes come as a response to the FTX crisis, where Japanese investors narrowly avoided significant losses due to existing regulations that allowed the FSA to issue a holding order.
Under this system, funds held by domestic exchanges could not be transferred abroad, effectively safeguarding local assets in the wake of FTX’s collapse.
Currently, 29 exchanges, both domestic and foreign, are registered under Japanese law and must adhere to regulations preventing asset outflows.
With the proposed amendment, the FSA aims to strengthen this framework, ensuring that all exchanges handling Japanese assets keep customer funds within the country’s borders.
By establishing a more robust system, Japan’s FSA seeks to protect investors from the fallout of foreign exchange failures. This will help maintain a secure and regulated environment for domestic cryptocurrency trading.
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Japan’s FSA Prposes Flat 20% Tax Rate On Crypto Gains
In September, Japan’s FSA proposed a flat 20% tax rate on crypto gains. This aligns them with traditional financial assets like stocks.
The proposal came as part of the FSA’s tax reform request submitted on 30 August 2024. It aims to simplify the treatment of crypto investments by categorizing them similarly to traditional financial (TradFi) assets.
Japan’s crypto industry has long advocated for reforms to reduce the tax burden on digital assets.
In 2023, the Japan Blockchain Association (JBA) pushed for a flat 20% tax rate and a loss carryover provision to stimulate growth in the sector. However, previous efforts have not led to significant policy changes.
Currently, Japanese crypto holders face steep tax rates, with individuals earning more than 40 million yen ($268,000) paying up to 55% on their crypto profits.
Corporate crypto holders also face a flat 30% tax on their holdings at the end of the financial year, regardless of whether they have sold any assets for profit.
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