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Japan Tightens Regulations on Electronic Payment Instruments

In an effort to increase transparency and reduce risks associated with electronic payment instruments (EPIs), the Japanese government has introduced new regulations that aim to improve the security and integrity of EPI transactions.

Obligation to Conclude Contract with Issuer

Under the new regulations, EPI Service Providers (EPIESPs) are required to conclude a contract with the issuer of electronic payment instruments. The contract must outline specific matters such as:

  • Allocation of liability for damages incurred by users
  • Criteria for compensation
  • Indemnification between parties

“Travel Rule” Imposed

The Anti-Money Laundering and Combating the Financing of Terrorism (AML/CTF) Policy also imposes a “travel rule” on EPIESPs. This requires them to confirm whether foreign entities engaged in the exchange or management of EPIs conduct Know-Your-Customer (KYC) checks on their customers.

Additional Regulations for Listing Foreign EPIs

EPIESPs listing foreign electronic payment instruments must ensure that these instruments meet specific conditions, including:

  • Being issued by a licensed entity
  • Having adequate funds for redemption

Additionally, they must covenant to repurchase the instruments if the issuer is unable to perform its obligations or if the value of the instruments falls significantly.

Guidelines for EPIESPs

The guidelines also outline measures to be taken by EPIESPs when listing foreign electronic payment instruments, including:

  • Collecting and recording specific information
  • Investigating and analyzing the attributes of unhosted wallets
  • Identifying and assessing associated risks

Industry Impact

These new regulations may impede the distribution of certain stablecoins in Japan, as they require EPIESPs to conclude a contract with the issuer. However, if EPIESPs satisfy certain obligations, they may be exempt from this requirement when listing overseas electronic payment instruments.

Conclusion

The Japanese government’s efforts to strengthen regulation and oversight of electronic payment instruments aim to protect consumers and reduce risks associated with these transactions. As the use of digital currencies continues to grow, it is essential for governments and regulatory bodies to stay ahead of the curve and implement effective measures to ensure the integrity and stability of these systems.