On October 24, 2018, the Japanese Financial Services Agency (JFSA) accredited the Japan Virtual Currency Exchange Association (JVCEA, established in March 2018) as a self-regulatory organization under the Payment Services Act (PSA). On the same day, an initial set of self-regulations and related guidelines came to effect, as prepared by the JVCEA. Going forward, it is anticipated that the JVCEA will cooperate with continued inspection and monitoring by the JFSA and will act to enhance customer protections relating to virtual currency transactions.

The JVCEA is a Japanese organization established for the purpose of unified domestic self-regulation of virtual currency exchanges, and its members include the sixteen currently registered Japanese virtual currency exchange service providers. In dealing with the virtual currency exchange industry, the JVCEA also seeks to address related services handled by virtual currency exchange service providers, including contracts for differences, derivatives transactions and digital wallets.

The recently established self-regulations, which consist of a set of some twenty rules and related guidelines, are attracting significant attention in the market as a whole, since these regulations are set to apply to all of the currently registered virtual currency exchange service providers in Japan. It should be noted that any violation of the self-regulations would result in disciplinary sanctions by the JVCEA.

Specifically, the self-regulatory framework covers fundamental regulations which relate to virtual currencies including the Payment Services Act, the Act on Prevention of Transfer of Criminal Proceeds and the Financial Instruments and Exchange Act.

The self-regulations include the following points of particular interest:

  • The introduction of new virtual currencies will require pre-authorization by the JVCEA. In addition, any virtual currency which does not record its transfer history will be prohibited, due to anti-money-laundering and counter-financing-terrorism considerations.
  • Exchanges must establish caps for the maximum amount of virtual currency that can be managed online. Exchanges must disclose to users the details of the private key safekeeping environment (including an indication of whether keys are maintained online or offline).
  • Exchanges will be required to implement appropriate customer-focused due diligence procedures for anti-money laundering purposes when offering wallets and at the time of individual transactions.
  • The regulations include rules regarding solicitation, advertisement and information disclosure related to virtual currencies, following the model of the Financial Instruments and Exchange Act (including restrictions on the solicitation of minors and certain inspection requirements when dealing with affiliate advertisements).
  • The regulations include rules regarding appropriate management of insider information and a prohibition on insider trading.
  • The regulations establish a provisional upper limit on permitted leverage levels for virtual currency margin trading (4:1).

Although the regulations do not currently have any ICO specific rules, the JVCEA is considering the establishment of regulations for ICOs (including regulations regarding a review of the business underlying the ICO and requiring certain types of information disclosure).

On October 24, 2018, the JFSA also released three important documents which will be significant for prospective members of the JVCEA. Namely, these include the “Application Examination Process for Virtual Currency Exchanges”, “Questionnaires concerning Application Examination for Virtual Currency Exchanges” and “Major Issues in the Application Examination for Virtual Currency Exchanges”. These will be covered in greater detail in a future blog post.


Gavin Raftery chairs Baker McKenzie's Asia Pacific Banking & Finance Group, and is the co-leader of the Banking & Finance Group in our Tokyo office. He is also one of the leaders of Baker McKenzie's Global Fintech Initiative. Gavin has extensive experience practicing finance law in Australia, the UK and Japan. He is listed as a leading lawyer for Banking and Finance in Japan by Chambers, Legal500 and IFLR.