Challenges in Transitioning Cryptocurrency Regulation to the Financial Instruments and Exchange Act: Balancing Investor Protection and Innovation | Interview with So Saito

Summary

【Regulatory Overview】Summary of the 'Working Group on Cryptocurrency Regulation'

──The framework of the Financial Instruments and Exchange Act is designed to manage high-risk financial products, but how do you think it should be adapted to not hinder innovation?

So Saito: Cryptocurrencies have traditionally been viewed as higher risk compared to conventional financial products. Initially, they were not included under the Financial Instruments and Exchange Act because, unlike stocks, they do not offer dividends.

Originally, cryptocurrencies were regulated under the Payment Services Act, as they were primarily intended to be used as a means of payment. However, their actual use has not been limited to payment purposes; they are increasingly being used for long-term holding and investment purposes.

Furthermore, as the market size and trading volume have expanded with price increases, their social impact has become too significant to ignore. This backdrop has led to the movement towards transitioning into the framework of the Financial Instruments and Exchange Act.

However, overly stringent regulations could potentially disrupt the market and hinder innovation, which would be counterproductive.

The most crucial aspect of the legislative amendments is how to balance investor protection with innovation. I understand that the Financial Services Agency is also keenly aware of this balance while designing the system.

──What specifically triggered the legislative amendments?

So Saito: Legal amendments concerning cryptocurrencies have been made in stages.

The first major milestone was in 2017. Following the 2014 Mt. Gox incident, the first legal framework for cryptocurrencies was established in 2017. After the 2018 Coincheck incident, there was a significant regulatory overhaul in 2020.

Since then, discussions on cryptocurrency brokerage and regulations concerning stablecoins have continued, and legislative amendments have been ongoing.

The background for the current amendments includes the emergence of foreign cryptocurrency ETFs, which have further expanded the market size.

Additionally, there have been longstanding requests from the industry to the government and ruling parties for tax reforms and a review of leverage regulations. To address these requests, it was argued that transitioning from the Payment Services Act to the Financial Instruments and Exchange Act would facilitate better organization.