The Japan Cryptocurrency Business Association (JCBA), an organization that strives for the sound development of the cryptoasset (virtual currency) business in Japan, released an opinion brief to the public on October 11 regarding regulations for cryptoasset management that were discussed by the organization on September 24. The brief is the result of opinion exchanges with cryptoasset custodians and other affiliated parties, taking their viewpoints into consideration with the purpose of contributing to the maintenance of a cryptoasset system that balances user protections and stable market development.

The topic for the opinion brief was the newly added cryptoasset management clause for cryptoasset exchangers in amendments to Japan’s Payment Services Act announced on May 31 of this year.

In the amended Payment Services Act, cryptoasset management carries the definition of “management of cryptoassets on behalf of other parties.” However, the JCBA points out that “this definition does not clearly state what sort of business content actually falls under ‘cryptoasset management’ for custodians who handle cryptoasset deposits for users,” and the brief attempts to clarify the scope of regulations by exemplifying cases that do and do not fall under “management.”

Moreover, the brief includes a section that states “management of cryptoassets on behalf of other parties” should be interpreted as a situation that satisfies the following three conditions: “(a) the cryptoasset custodian subject to these regulations has the authority to transfer the assets to any destination based solely on their own judgement and not the will of the user, (b) return of the cryptoassets subject to these regulations to the user has been assured, and (c) safekeeping of cryptoassets subject to these regulations is for the user’s convenience.

Examples of cases that are considered “cryptoasset management” include “cases that make it possible for a user to deposit cryptoassets at an operator, with the operator sending a certain amount of assets from the user’s balance to another user without the original user’s signature or transferring assets equivalent to a user’s balance to an address designated by the user” and “cases that use 2-out-of-2 secret sharing in which one piece of a private key goes to the user and the operator retains the other, with the operator’s piece of the key aggregated to decrypt the entire key at the time of signing.” Examples of what would not be considered “cryptoasset management” include “a client-side wallet in which only the user can control their cryptoassets” and “the Lightning Network (because an operator cannot control a user’s cryptoassets based on their own judgement).”

Furthermore, the brief requests “reflecting such scenarios appropriately in Cabinet of Japan ordinances and operative guidelines, in consideration of items to be regulated by the ordinances from the Cabinet of Japan going forward,” paving the way for more specific development of laws and regulations governing cryptocurrency in Japan.

*This article was written by FISCO.