Japan offers a Virtual Currency exchange licence under the Payment Services Act of Japan. It is one of the few countries in the world that regulates virtual currency exchange activity. The process is fairly new, with only a handful of companies being licensed at present. The regulatory framework also requires some adaptability as the regulator decides how to manage the supervision of certain unforeseen regulatory risks in the drafting of the legislation. Below we outline some of the requirements you should be aware of before commencing the process.
Branch or Subsidiary
Setting up a subsidiary in Japan for the purpose of acquiring a licence is the common route. At present, a foreign company has not applied directly for a licence from the Financial Services Agency of Japan (JFSA) as a branch of a foreign entity.
Local resource to support the licence application process and the entity once licensed is essential. The complaints officer, compliance officer and audit function should be local. You should also aim to have one local general representative of the company. Essential Japanese language skills will be necessary for those persons.
We would estimate six to 12 months for the completion of a licensing project. The first step would be to take Japanese policies and templates and then adapt them to the product being licensed. Then we would start a process of engagement with the Kanto Local Finance Bureau (KLFB) about the product or services. Important to note that you may be able to leverage your existing policy framework but that there will be specific requirements for the Japanese market.
Working with a Local Law Firm
Diacle works with a local law firm who will actively manage communication with the KLFB, helps with the production of Japanese documentation and acts as a liaison point for regulatory matters.
You will need to prepare a presentation of your business including its business model (global business model, the role of the Japan subsidiary, key members and or board members etc). Then we will organise a meeting with the local office of the JP FSA (aka Kanto Local Finance Bureau, or KLFB). After the first meeting, we will prepare the draft documentation they will require and send to KLFB. KLFB will ask a series of questions. Then after 3 months they should give us permission to file. Once filed the JFSA will have 2 months to accept or refuse the application.
You will a minimum capital of USD100k. Note that the KLFB cares more about your sustainability than formal minimum capital requirements. So, your operational capital based on your forecast cash flows will be what the KLFB will be interested in. A minimum estimate to start this project should be in the region of USD500k.
The applicant should confirm the tokens that it will have on the exchange. Those tokens will be reviewed and approved by KLFB. Any additional tokens will need to be approved.
It is advisable to join a Japanese business association, as virtual currency is an evolving area of law and regulatory policy. This requires some coordination across the industry. Our local lawyer is the legal counsel of this association. See website: https://cryptocurrency-association.org/.