Japan’s Financial Services Agency Cautions Against ICO Risks

On October 27, 2017, Financial Services Agency (FSA) of Japan announced a warning about the risks of ICOs to business operators and traders. Initial coin offerings (ICOs) or token sales are token offerings used as method for crowdfunding projects by selling digital assets.

The FSA explained that high risks are associated with digital tokens exchanged through these offerings for cryptocurrency users. Risks can be instability in price and possibilities for fraud. According to FSA

“The price of a token may decline or become worthless suddenly. Deal at your own risk only after understanding enough the risks … and the content of an ICO project if you buy a token, You should also pay careful attention to suspicious solicitation on ICOs.”

The FSA outlined that for businesses, “ICOs may fall within the scope of the Payment Services Act and/or the Financial Instruments and Exchange Act depending on how they are structured.”

Businesses that are financed by token offerings have to obey legal and regulatory requirements. Those businesses without appropriate registration can cause criminal penalties. The FSA explained at the end of its release that virtual currency exchanges

“must be registered with each Local Finance Bureau that is delegated authority … by the Prime Minister”.

Warnings have been issued by the regulator that “the characteristics of an investment” possessed by token offerings will have to follow the Financial Instruments and Exchange Act. The FSA had licensed 11 cryptocurrency exchange operators by September which shows cryptocurrency is highly preferred in Japan. The FSA has appointed a team of 30 members for regulation of virtual currency exchanges headed by a chief for monitoring.

Through Project Stella, the Bank of Japan has cooperated with the European Central Bank to study distributed ledger technology (DLT). To “meet the performance needs of a Real-Time Gross Settlement system”, DLT could be useful as per central bank findings.


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