Japan's Financial Services Agency Set to Reform Crypto Gaming Laws

The Financial Services Agency (FSA), Japan's top financial regulator, is reportedly preparing to reform the nation's crypto gaming regulations. According to reports from Japanese outlets Nikkei and CoinPost, the FSA aims to create a more favorable environment for businesses handling cryptoassets, particularly in the blockchain gaming sector.

Proposed Reforms to Encourage Blockchain Gaming Growth

A working group within the Financial System Council will begin reviewing the Payment Services Act, the legislation that currently governs the handling of cryptoassets in Japan.

The planned reforms could ease restrictions for companies using in-game cryptoassets, potentially encouraging more major domestic corporations to explore blockchain gaming opportunities.

Japan, much like neighboring South Korea, is home to a number of large gaming companies. However, strict regulations regarding crypto, gaming, and gambling have historically made it difficult for these firms to fully embrace blockchain technology.

Despite the region's deep roots in the gaming industry, many Japanese firms have been hesitant to adopt blockchain-based systems due to the stringent regulatory landscape.

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Relaxation of Regulations in Response to Industry Pressure

In recent years, Tokyo has been pressured by the industry to reform its crypto-related laws. Political opponents have accused Japan’s ruling Liberal Democratic Party (LDP) of driving domestic web3 startups abroad due to outdated regulatory practices.

In response, the government has already relaxed certain tax rules for crypto-holding firms, with individual tax reforms for crypto traders expected to follow.

One of the key areas of focus for reform is the way in-game cryptoassets are handled. Currently, Japanese companies using tradeable in-game currencies must prove they have sufficient reserves to refund users in case of hacks or other emergencies, a rule that has proven burdensome for many firms.

The FSA is reportedly open to reviewing or potentially eliminating this requirement, making it easier for players to purchase in-game items using cryptoassets, much like in other international markets.

Asset Management and Tax Issues Under Review

Asset management is another area likely to undergo changes. The existing regulatory framework makes it difficult for gaming companies to explore crypto options due to strict asset management requirements.

The FSA has indicated that this issue will be reviewed at future working group meetings of the Financial System Council.

Additionally, Masaaki Taira, chairman of the LDP's web3 policy unit, has been vocal about the need for tax system reforms. He recently stated that Japan's tax laws are not optimized for startups in the modern era, particularly those involved in blockchain and token issuance.

Taira noted that when Japanese startups issue lesser-known tokens, accounting firms often struggle to conduct proper audits, presenting another challenge for the industry.