Japanese Financial Watchdog to Launch New ICO Regulations

The Financial Services Agency is set to introduce a new regulatory framework for ICOs, requiring that any company looking to conduct a token sale register with the agency first.

Japan’s Financial Services Agency (FSA) is preparing to launch new regulations for initial coin offerings (ICOs) in a bid to increase investor protection, as per a report by local news outlet Jiji Press.

Citing unidentified insiders, Jiji said that cases of fraudulent ICOs “abroad” have compelled the FSA to develop a new regulatory framework for this method of crowdfunding. The regulations will aim to “limit individuals’ investment in ICOs for better protecting them.”

Under the new rules, all business operators looking to conduct an ICO would be required to register with the FSA. The agency first plans to submit bills for revising laws pertaining to financial instruments, exchanges, and payment services during the regular parliamentary session due to commence next month.

ICOs, a crowdfunding mechanism whereby companies raise funds by selling digital tokens, became immensely popular during the latter half of 2017. However, they have also been highly problematic owing to the significant number of scams in the space, as well as the ambiguity surrounding the legal status of the digital tokens sold via ICOs.

A study conducted earlier this year by ICO advisory company Satis Group revealed that 80% of the ICOs organized during 2017 were scams, while a more recent report by Diar found that since 2016, ICO exit scams (those that have been exposed) have made off with approximately $100 million from unsuspecting investors.

China has a blanket ban on ICOs, while the Securities and Exchange Commission (SEC) of the United States has been hot on the trail of fraudulent token sales. The SEC recently went after celebrities Floyd Mayweather and DJ Khaled for promoting the Centra ICO without disclosing payments. This project was greatly hyped before collapsing in April.

While Japan is a fairly crypto-friendly jurisdiction, the country has been compelled to put certain regulatory measures in place due to a number of scams and hacks. Among other things, it granted crypto exchanges the power to self-regulate via the Japanese Virtual Currency Exchange Association. A police report revealed that the number of crypto-related cybercrimes in Japan rose sharply during the first six months of 2018, with around $540 million having been stolen, mainly through the massive Coincheck hack in January.

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