You can see the rules and regulations in other jurisdictions.
A 'cryptoasset exchange business operator' is one who engages in the following activities: (1) selling and purchasing cryptoasset or exchanging cryptoasset with another cryptoasset; (2) acting as an intermediary, broker or agent for the services in point (1); or (3) managing the monies or cryptoassets of users in connection with points (1) or (2).1
Cryptoasset exchanges are required to keep the funds and cryptoassets of their users different from those owned by the operators. In January 2022, there were 30 such businesses registered in Japan. The FSA refused applications for new firms in 2018, but after that it took steps to tighten its examination and supervision of these exchanges. That same year, two significant organisations related to the industry joined forces and created rigid self-regulations to boost trust from both customers and governing bodies.1
In 2018, due to multiple cases of theft, insufficient internal control and the emergence of new transactions such as ICOs and derivatives trading, the cryptoasset environment found itself confronted with several problems. Owing to wildly fluctuating prices, these assets became a focus for speculative trading. In order to combat these issues, revisions were made to the PSA and FIEA, taking effect on 1 May 2020.1
The revised PSA replaced 'cryptocurrencies' with 'cryptoassets', mostly payment tokens. Steps have been taken to protect against cryptoasset theft, such as requiring exchanges to maintain both net assets and cryptoassets in an amount equal to or greater than any customer cryptoassets stored on 'hot wallets', so customer's rights are not compromised. Regulations are being strengthened to ensure proper operations; this includes having transaction price info disclosed publicly, a ban on advertisement that promotes speculative trading, and notification of the regulator before making changes related to which cryptoassets are handled.1
Furthermore, it expands the scope of cryptoasset management regulations and AML regulations to include custody services for cryptoassets.1
The revised FIEA addresses a range of facets regarding cryptoasset dealings that necessitate securities-style rules. For instance, comparable to rules enforcing the shares of listed companies, the revised FIEA introduces regulations against unfair transactions involving cryptoassets. This includes barring conduct like inappropriate activity on cryptoasset transactions, circulating unsubstantiated rumour and market manipulation, as well as placing demands upon cryptoasset exchanges to monitor transactions. Furthermore, the revised FIEA also regulates derivatives transactions linked with cryptoassets, akin to those governing foreign exchange margin trading. It requires registration for exchanges dispensing cryptoasset derivatives services and applies comparable regulation to foreign exchange margin trading.1
In Paragraph 1 of the revised FIEA, security tokens are included, except for some less liquid tokens. Security tokens, including STOs, are therefore subject to disclosure and registration requirements. An issuer must file a registration statement and distribute an offering memorandum for the public placement of ERTRs. The disclosure requirements can be mitigated by a private placement to qualified institutional investors.1
As for registration, to operate as a Type I financial instruments business it is necessary to either purchase and sell ERTRs or work as an intermediary, broker or agent relating to the purchase and sale of ERTRs (including public and private placement). If an ERTR issuer itself approaches investors with its ERTRs, they will likely be required to register as a Type II financial instruments business. However, if the solicitation meets certain criteria for private placement (an exempted solicitation to qualified institutional investors and a limited number of accredited investors), then only filing is required instead of registration.1
As with traditional securities, ERTR transactions, including STOs, would be subject to regulations governing unfair transactions.1
