Japan's Finance Minister Balks at Changing Crypto Tax Rules

Japan's top financial official is cautious about the idea of his nation changing how it taxes gains from cryptocurrencies.

During a meeting with the budget committee of the Upper House on June 25, Senator Kenji Fukimaki asked whether Japan's tax policy on cryptocurrency profits could be changed from its current «miscellaneous income» classification to «separate declared taxation,» Reuters reported. Taro Aso, the deputy prime minister and minister of finance, said he was cautious about making such a change.

Aso explained that, in his view, it was «doubtful» that the general public would understand such a change. He cited the «international nature» of cryptocurrency as one reason why Japanese residents might dislike a change in tax classification. The finance minister also said he was unsure about the «tax fairness» of implementing such a change.

At present, profits earned by investors in cryptocurrency can be taxed between 15 and 55 percent, due to the miscellaneous income rules, according to Bloomberg. Stock profits, which are treated more like separate declared taxes, are taxed at roughly 20 percent in the country.

While the finance official has doubts about cryptocurrency taxation, he still expressed support for blockchain technology in general, saying they have uses apart from cryptocurrencies.

Editor's note: Statements in this article have been translated from Japanese.

Japan: Financial Watchdog to Issue Business Improvement Notices to 5 Crypto Exchanges

Japan’s Financial Services Agency (FSA) will be issuing business improvement notices to five registered cryptocurrency exchanges by the end of this week.

According to the FSA inspections, crypto exchanges BitFlyer, Quoine, Bitbank, BITPoint Japan, and BtcBox do not have the proper internal management systems, including their measures to prevent money laundering. BitFlyer, Quoine and Bitbank are some of the largest crypto exchanges both in the country and in the world, currently sitting at 27th, 18th and 20th places by trade volume, according to Coinmarketcap data.

When asked about the business improvement notices, BITPoint Japan told Cointelegraph Japan that there is “no such fact at the present time,” BitFlyer said they are “not in a position to comment,” Bitbank and Quoine said they could not answer, and BtcBox did not respond to a request for comment by press time.

Following the January $532 million hack of NEM from Japanese crypto exchange Coincheck, the FSA had begun inspections of crypto exchanges, issuing multiple business improvement notices and halting the operations of several exchanges as well.

Since April 2017, all crypto exchanges in Japan must be registered with an FSA license to operate. At the beginning of June, the FSA rejected a crypto exchange license application for the first time, citing concerns that the exchange — whose services had already been suspended twice this spring — didn’t provide adequate customer identity verification in the case of suspicious transactions.

SBI Launches Japan's First Bank-Backed Crypto Exchange

Japanese financial giant SBI Holdings announced on Monday that its in-house cryptocurrency exchange is now live, after a months-long delay due to security concerns.

Called VCTRADE, the service is currently only open for users who have pre-registered with the platform in October 2017, the company said in the announcement and expects it to be available for a wider public in July of this year.

In addition, SBI said as a first step, VCTRADE will focus on the trading of XRP, the native token derived from the Ripple protocol, after which the exchange will sequentially add supports for bitcoin and bitcoin cash, though an initial timeline for that remains unclear at this stage.

The decision is perhaps not entirely surprising given SBI Holdings' existing works in piloting the remittance technology provided by the San Francisco-based Ripple that uses a distributed ledger to make cross-border transactions.

SBI Holdings first established its wholly-owned subsidiary — SBI Virtual Currencies — in October 2016 in a bid to launch the country's first crypto exchange that is fully backed by a major financial institution.

The platform later completed business registration with Japan's Financial Services Agency (FSA) in September 2017 but announced in February of this year that the opening would be delayed due to security concerns amid the Coincheck hack.

The new service also comes after SBI Virtual Currencies has canceled a partnership in March with crypto exchange Huobi that would use the latter's financial and technological resources to launch VCTRADE.

Japan's Ban Is a Wake-Up Call to Defend Privacy Coins

Crypto enthusiasts, heed this warning: Japanese regulators are veering into the unknown.

A country that once served as a beacon of hope for the development of blockchain-backed initiatives in the region has abruptly changed its stance in recent months, reconsidering the role that cryptocurrencies should be allowed to play in Japan's commercial ecosystem.

And this is no more apparent than when discussing the current state of privacy coins.

Earlier this week, the Japanese Financial Security Agency (FSA) announced that on June 18, there will be an outright ban on all cryptocurrencies that provide a sufficient degree of anonymity to its end users.

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Japanese Research Group Calls for 'Appropriate' ICO Rules

A research group in Japan has put forward a series of proposals related to initial coin offerings, including those focused on investor protection and money laundering prevention.

Spearheaded by a Tama University professor and general advisor Takuya Hirai, a member of Japan's House of Representatives, the ICO Business Research Group features advisors such as Yuzo Kano, the CEO and co-founder of cryptocurrency exchange bitFlyer and includes members drawn from various financial institutions, venture companies, and private-sector businesses. The group was first formed last November.

«Appropriate rules must be set to enable ICO to obtain public trust and to expand as a sound and reliable financing method,» the report, released Thursday, reads.

Though not indicated in the Group's publication, Bloomberg Technology reports that the proposals will be considered by the country's financial regulator, the Financial Services Agency (FSA), later this month, with the possibility of eventually becoming law.

In February, a report indicated that the agency is considering the revision of existing laws and regulations to account for token sales. The FSA also issued a warning last October emphasizing the risks associated with ICOs.

Varied proposals

On the question of issuing and selling tokens, the group argued that issuers should provide a means for tracking the development of white papers, in addition to outlining «conditions for the provision of conveniences such as services and rules on the distribution of procured funds, profits, as well as residual assets, to investors of tokens, shareholders and debt holders.»

Likewise, the Group recommends that ICOs should be designed «to be acceptable to existing shareholders and debt holders,» and should not be used as a means of circumventing traditional financing methods.

In order to protect investors, the authors suggest that token issuers should comply with existing KYC methods in order to assess the suitability of investors and to confirm their identities. They also advocated for measures to prevent insider trading.

«Cryptocurrency exchanges should define and adopt an industry-wide minimum standard on token listing,» the report adds, concluding:

«Although there are a wide variety of issues to be considered and it would not be easy to find solutions for all of them. We hope the above proposals would contribute to future discussions by each related party.»

Report: Two Japanese Crypto Exchanges to Shut Down

Two cryptocurrency exchanges in Japan are reportedly set to cease operating amid growing scrutiny from regulators in the wake of a $500 million theft.

According to Nikkei, two exchanges — Mr. Exchange and Tokyo GateWay — are withdrawing previously filed applications with Japan's Financial Services Agency (FSA) in which they sought approval to launch services to domestic customers.

No official statements have been published by either exchange as of press time, though Mr. Exchange posted on March 8 that it had received an order requiring it to beef up its internal protocols in the wake of the attack on Coincheck in late January. The incident resulted in approximately $533 million worth of the cryptocurrency NEM token being stolen.

Per Nikkei's report, the closures won't occur until user funds have been withdrawn or otherwise returned.

Still, the development is notable, as earlier this month, Japanese regulators suspended two cryptocurrency exchanges, FSHO and Bit Station, citing security flaws. According to Nikkei, Bit Station has withdrawn its application with the agency, as have two others: Raimu and bitExpress.

«More are expected to follow, as the FSA has given several exchanges a chance voluntarily close before ordering them to do so,» the news service added.

Exchanges in Japan are required to register with the FSA, as mandated by a law that went into effect last March. While a number of exchanges have received licenses to date, the agency has nonetheless stepped up its oversight of the industry in the wake of the Coincheck hack.