Japan reclassifies crypto as financial products, paving way for lower taxes and ETFs

28 crypto service providers register with India’s FIUIn India, 28 entities providing services related to virtual digital assets (VDAs) have successfully registered with the Financial Intelligence Unit (FIU), the body responsible for combating money laundering in the world’s most populous country.Notable names in this list include Neblio Technologies, more commonly known as CoinDCX, Zanmai Labs, the company responsible for the WazirX crypto platform, Bitcipher Labs’ CoinSwitch, Nextgendev Solutions and Awlencan Innovations India’s Zebpay.Photo by Big G Media on UnsplashA need to register as ‘reporting entities’This information comes in response to a question posed in the Lok Sabha (India’s lower house of Parliament), where the government emphasized the significance of these entities complying with the Prevention of Money Laundering Act (PMLA). In March, the government had formally designated companies dealing in VDAs, crypto exchanges and related intermediaries as “reporting entities” under the PMLA.According to the notification, crypto exchanges and their intermediaries are obligated to conduct Know Your Customer (KYC) procedures for their clients and platform users. This includes maintaining KYC details, identity documents, account files and business correspondence records with clients.Offshore exchanges required to registerMinister of State for Finance Pankaj Chaudhary mentioned that the registration process for VDA service providers catering to the Indian market is underway. Non-compliance with these regulations may result in appropriate action under the PMLA. It has been clarified that offshore crypto exchanges operating in India are required to adhere to these guidelines. Despite that, none of the 28 entities who have registered so far appear to be offshore companies.Commenting on the development via the X social media platform, Sumit Gupta, Co-Founder of CoinDCX, wrote:”Emphasizing compliance to PMLA is vital for the safety and financial integrity of Indians, as dealing with non-registered platforms exposes citizens to nefarious actors, putting their finances at risk.” . . . “It’s encouraging to witness the Government initiating actions against non-compliant offshore entities.”While steps to provide guidelines for the industry are largely positive, the Reserve Bank of India (RBI) has been vocal in its criticism of cryptocurrencies and calls for potential bans have cast a shadow over the industry in India. The recent collapse of prominent platforms like FTX have not been helpful, only serving to exacerbate concerns relative to India’s crypto ecosystem.The negative sentiment, coupled with an ongoing funding winter, has resulted in the closure of operations for some crypto platforms, including Pillow and WeTrade, this year. Firms like CoinSwitch and Gupta’s CoinDCX have had to reduce headcount in 2023 amid challenging market conditions.Despite these challenges, there are also positive signs. A recent report by blockchain analytics firm Chainalysis found that India has been the frontrunner more recently in terms of crypto adoption in Asia.This latest development provides guidelines where anti-money laundering processes are concerned for crypto firms in India. However, the government needs to follow through with a complete regulatory framework for the industry. The Indian courts recently declined to act on such a petition on the basis that it falls within the remit of the country’s legislature and is outside the purview of the courts.

Hong Kong Takes Steps to Enhance Crypto Platform OversightIn the wake of the ongoing JPEX scandal, the Securities and Futures Commission (SFC) of Hong Kong has pledged to intensify its efforts to combat unregulated cryptocurrency trading platforms operating within the Chinese autonomous territory.Photo by Ruslan Bardash on UnsplashPublic registry plannedAs of Monday, the SFC has announced a comprehensive plan to address these concerns. One key initiative includes the publication of a publicly accessible list encompassing all licensed, deemed licensed, closing down, and application-pending virtual asset trading platforms (VATPs). The purpose of this list is to empower the public with the information needed to identify potentially unregulated VATPs conducting business in Hong Kong.Ongoing JPEX falloutThese new measures arrive in the aftermath of the ongoing JPEX crypto exchange scandal, which local media outlets have characterized as one of the most significant financial fraud cases to ever impact the region. JPEX, a Dubai-headquartered platform, stands accused of offering its services to Hong Kong residents without having applied for a license in the country.The SFC pointed directly to the issues at JPEX in its most recent announcement, stating: “The JPEX incident highlights the risks of dealing with unregulated VATPs and the need for proper regulation to maintain market confidence. It also shows that dissemination of information to the investing public through the Alert List, warnings and investor education can be further enhanced to help members of the investing public better understand the potential risks entailed by suspicious websites or VATPs.”Christopher “Kit” Wilson, the Director of Enforcement at the SFC, discussed these developments at a press briefing held on Monday, alongside addressing the JPEX scandal. Wilson revealed that, due to evasive behavior from stakeholders and unsatisfactory responses to information requests, JPEX was placed on the regulator’s alert list in July 2022.It emerged last week that Hong Kong police had taken social media influencer Joseph Lam into custody related to the scandal. More arrests followed later in the week while authorities indicated that they were looking to tighten up regulation in light of the unfolding JPEX saga. By Friday, access to the web and mobile platforms of JPEX had been blocked with JPEX encouraging users to use VPN to circumvent the measure.Wilson further elaborated that a complex investigation, involving multiple parties across various jurisdictions, was initiated by the SFC, which escalated following the receipt of the organization’s first official investor complaint in April 2023. This coincided with the full implementation of the Anti-Money Laundering Ordinance (AMLO) in June 2023, prompting the commencement of a formal fraud investigation.Wilson stated: “As a result of that investigation, we issued a formal warning on Sept. 13 and referred the matter to the police.”As it stands right now, the financial ramifications of the JPEX scandal are estimated to have reached approximately $178 million. Local law enforcement agencies have received over 2,200 complaints from affected exchange users.

Japan's Financial Services Agency (FSA), the nation's primary financial regulator, has recently proposed a series of measures aimed at safeguarding users against "unlawful transfers" to cryptocurrency exchanges. This move, however, may pose significant challenges to the peer-to-peer (P2P) transactions market. Bolstering user protection measuresCiting findings from the National Police Agency, which highlight that damages resulting from specialized fraud involving unlawful money transfers are predominantly facilitated through cryptocurrency, the FSA has urged financial institutions to bolster user protection measures. The agency emphasized the importance of assessing risks associated with transfers to crypto-asset exchange service providers. In a request published on Wednesday directed towards Japanese banks, the FSA underscored the persistently high incidence of fraudulent transactions in the country, facilitated through crypto. To address this concern, the FSA and the National Police Agency have proposed various initiatives. One such initiative entails directing banks to enhance monitoring of unlawful transfers to cryptocurrency exchange service providers.Photo by Jayjayli on UnsplashPeer-to-peer (P2P) market implicationsHowever, another proposal from the regulator may have a profound impact on the P2P market. The FSA suggests halting transfers to cryptocurrency exchange service providers if the sender's name differs from the account name. This recommendation, explained in the Japanese version of the press release using the term "reject," implies the suspension of such transfers from both individual and corporate accounts. For users of P2P platforms, where transactions often involve different names between the sender's and receiver's fiat and crypto accounts, this directive could significantly disrupt the market. Rejecting transactions from an individual's bank account to another individual’s crypto wallet could undermine the functionality of P2P transactions. Positive crypto developmentsDespite this potential issue needing to be clarified and resolved and the East Asian nation not having a comprehensive regulatory framework for cryptocurrencies in place, Japan is showing indications of gearing up for broader adoption. The Bank of Japan (BoJ) is preparing to pilot a Japanese central bank digital currency (CBDC) pegged to the Japanese yen.In June of last year, the country established a legal framework for stablecoins. Additionally, the FSA has proposed a legislative amendment to support the development of decentralized autonomous organizations (DAOs) in Japan. The proposed amendment aims to designate potential DAO tokens as "Limited Company Type DAO Employee Rights Tokens," granting holders legal rights akin to regular limited liability company (LLC) members. Last December the Japanese government considered and later acted on revising crypto tax policy to exempt unrealized crypto gains from being taxed. This proposal was originally put forward by the FSA earlier in 2023. In another development, authorities in the city of Kochi signed an agreement on Feb. 7 to virtualize the city on the Start Lands metaverse application, with plans to welcome online tourists later this summer. Despite these most recent recommendations from the FSA potentially signaling a less crypto-friendly stance, the Japanese authorities have otherwise demonstrated that they’re working towards creating workable conditions for the development of crypto and Web3 within the country.