On June 21, the Financial Services Agency of Japan (the “FSA”) issued a draft partial amendment to the Guidelines for Administrative Processes of virtual currency exchanges.

The FSA is planning to clarify the contents of the Guidelines for Administrative Processes related to such items as standards for appropriately handling virtual currencies, business management including developing an evaluation system for appropriately handling virtual currencies and identifying management risks, user protection measures, money laundering and terrorism financing countermeasures, segregated management of users’ virtual currencies and their own assets, handling risks of outflows of users’ virtual currencies, and systemic risks.

Regarding the handling of Initial Coin Offerings (ICOs: financing using virtual currencies), the FSA intends to develop guidelines separately for the following two cases: (1) where issuers (virtual currency exchanges) sell ICO tokens and (2) where virtual currency exchanges sell ICO tokens on behalf of issuers.

With respect to virtual currencies, two leading Japanese virtual currency exchanges experienced a massive theft of virtual currencies last year. Back in 2014, another incident occurred where Japan-based virtual currency exchange Mt. Gox, which is said to have been handling about 70% of all Bitcoin trades worldwide at the time, lost a massive amount of Bitcoins.

In response, the draft amendment to the Guidelines for Administrative Processes is expected to facilitate a clarification of the segregated management of users’ virtual currencies and their own assets, as well as the handling of risks of outflows, especially in the area of security. How clarification of the guidelines will affect existing virtual currency exchanges is attracting growing attention.

*This article was written by Fisco