In Japan, security tokens generally refer to rights displayed on securities such as stocks and bonds, which are recorded on digital tokens rather than on paper. The sale or solicitation for the sale of security tokens to investors is also referred to as STO, regardless of whether it is a public offering or a private placement.
B) Regulation on security token issuers
The tokens you issue will be subject to different regulations depending on whether they are classified as electronic record transfer rights, securities, or something else. In the following, we will introduce three cases and their main points for each case.
1. Issuance of electronic record transfer right
The Amended Payment Services Act explicitly states that tokens that display electronic record transfer rights are excluded from crypto assets. For that reason, such tokens do not need to be regulated by the Payment Services Act Law.
2. Issuance of tokens representing securities
According to the response of the FSA's draft Cabinet Office Ordinance etc., tokens that fall under the category of securities but do not fall under the category of electronic record transfer rights are not subject to regulations under Payment Services Act.
3. Issuance of tokens that represent rights other than securities
Tokenized rights that do not fall under the category of electronically recorded transfer rights and that do not fall under the category of securities (e.g. fixed-rate loan receivables) are not regulated under Financial Instruments and Exchange Law as long as they do not fall under the category of securities. However, they may still be qualified as a crypto asset. In such a case, the issuer may be subject to the regulations of the Amended Payment Services Act, and the issuer may be required to obtain a crypto asset exchange business license.