Published on September 30, 2024
By: Pofan Palnudoti
According to reports from Nikkei and CoinPost, Japan’s Financial Services Agency (FSA) is looking to revise laws related to crypto games. The FSA is responsible for maintaining the stability of the country’s financial system, overseeing everything from bank regulations to consumer protection and anti-money laundering efforts.
The FSA has proposed creating a system to simplify fund management for companies using crypto in video games and other industries. It also addresses the challenges organizations face when raising funds to reimburse users.
If the FSA’s plans go through, using crypto assets could become much more practical for businesses and consumers. With numerous gaming companies in Japan, many of which have remained on the sidelines of the Blockchain sector, legal reforms are likely to encourage several to explore crypto-based gaming.
It’s important to note that Tokyo has imposed strict regulations in three key areas: cryptocurrencies, video games, and gambling. Japan was one of the first countries to introduce formal regulations in the crypto space, especially after Mt. Gox’s collapse. This uncertainty around regulations is a major reason why gaming companies often hesitate to adopt blockchain technology.
However, Japan is looking to ease its strict crypto regulations. In October 2023, several lawmakers proposed reforms to the country’s tax laws to prevent crypto talent and capital from moving abroad. At that time, the FSA expressed its support for amending the regulations, but final approval depended on the National Tax Agency (NTA).
Finally, in December 2023, Japan announced that it would eliminate the tax on unrealized crypto gains, meaning companies no longer have to pay taxes until they sell their crypto. Previously, businesses were required to declare and pay taxes on any increase in value, even if they hadn’t sold the crypto.
Getting back to the main point, Nikkei reported that the FSA’s reforms aim to ‘make it easier for players to purchase items in crypto games, just like they do abroad’. Currently, Japanese companies that use crypto assets in their games must show they have the funds to reimburse users in case of emergencies.
This requirement poses a significant challenge for some companies due to the audit costs involved. Furthermore, maintaining reserve capital might discourage businesses from innovating their products and services. The FSA appears open to the possibility of modifying or even removing this requirement.
“When Japanese startups issue tokens that aren’t as widely recognized as Bitcoin, accounting firms have difficulty performing adequate audits. This continues to be a significant issue”.
–Masaaki Taira, LDP member.
Auditing lesser-known tokens, as opposed to Bitcoin, presents additional challenges. Lack of clear documentation makes it difficult to gather essential audit information. Furthermore, the high volatility of these tokens complicates the valuation of assets and liabilities.
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