Japan Financial Services Agency Launches Revision of Funds Settlement Law, Covering DeFi, Cashless Payments, and Fintechs

On September 26, Japan's Financial Services Agency (FSA) held its first Working Group Meeting on Revision of the Funds Settlement Law on the 25th to begin deliberations on regulations related to the fintech era, including crypto assets and stable coins. The meeting aimed to respond to the diverse needs arising from the digitization of financial services and to promote a balance between user protection and healthy market development.

In the working group meeting, discussions were held on how to develop institutional designs for rapidly evolving financial businesses, covering areas such as decentralized finance (DeFi), cashless payments, and fintech. The FMA will seek to ensure the stability and competitiveness of Japan's financial system in line with international trends.

One focus will be on strengthening the regulation of crypto-asset exchanges. Drawing on lessons learned from the FTX bankruptcy in November 2022, the FDA will consider introducing measures under the Funds Settlement Act framework that mandate exchanges to hold assets domestically, in order to enhance the protection of user assets in the event of an exchange's insolvency.

Discussions on stablecoins also aim to promote their use. Specific trust-based stablecoins are currently subject to the same regulatory standards as bank deposits, but other countries have greater flexibility in the operation of backing assets. Japan is also considering adapting regulations.