Discussion on Stablecoin 1 Million Yen Cap at Financial Services Agency Research Meeting; JPYC and SBI VC Trade Request Review, Lending Regulations Also a Point of Discussion

Key Points of This Article

• JPYC estimates 5,000 divisions for issuing 5 billion yen in benefits
• SBI VC Trade requests the removal of the cap on the 4th type of electronic payment method

Financial Services Agency Discusses Stablecoin System

On the 2nd, the Financial Services Agency held the second meeting of the "Research Group on the Approach to Digital and Decentralized Finance" (FY 2023). The agenda included a review of the system for electronic payment methods (stablecoins), addressing the 1 million yen cap on issuance and transfers, and the regulations on lending. Hearings were conducted from three parties: JPYC Co., Ltd., SBI VC Trade, and the Japanese Bankers Association (Zenginkyo).

The secretariat's materials organized the discussion points into five categories: current regulations and underlying assets, the 1 million yen transfer cap, lending, issuance of stablecoins by financial institutions handling deposits, and tokenized deposits.

At the outset, the strategy "Financial Strategy to Promote Growth Investment" announced on July 21 was referenced, promoting "on-chain finance" based on blockchain technology. This strategy includes examining the institutional framework for stablecoins and risk reduction measures for DeFi, including decentralized exchanges (DEX).

Under the current system, the first type of electronic payment method issued by fund transfer businesses in Japan requires registration as a second type of fund transfer business, with a cap of 1 million yen per foreign exchange transaction. Foreign electronic payment methods like USDC are also subject to measures that limit transfers to below 1 million yen per transaction for the businesses handling them. The secretariat explained that this cap was established to facilitate the entry of fund transfer businesses and asked the committee for their views on its appropriateness.

Regarding lending, it was confirmed that there are currently no comprehensive regulations. The structure where lenders bear the credit risk of the business was pointed out, and it was noted that if electronic payment methods are considered money, attention must also be paid to the relationship with deposit regulations under the Investment Law.

Two Businesses Request Review of the Cap

JPYC Co., Ltd., which issues the electronic payment method stablecoin JPYC, explained that the cap applies only at the issuance stage. On-chain transfers between unhosted wallets are not subject to the cap; however, when municipalities or companies convert funds to JPYC in bulk, it counts as one foreign exchange transaction. According to their estimates, distributing 50,000 yen to 100,000 people would require 5,000 divisions for issuing 5 billion yen in funds.

The company requested clarification on the treatment of bulk issuance if the distribution per recipient can be categorized as below 1 million yen. They also requested the removal of the cap or the establishment of a separate framework when dealing with national and local governments, banks, securities companies, and verified corporations (such as listed companies). In all cases, they called for a phased review along with user protection measures such as enhanced transaction monitoring.

SBI VC Trade handles dollar-denominated USDC and RLUSD, as well as yen-denominated JPYSC. The trust-based third type of electronic payment method, JPYSC, has no cap. However, the two dollar-denominated products are subject to a transfer cap of 1 million yen equivalent per transaction and measures to prevent holdings exceeding 1 million yen, which do not meet the needs for corporate cross-border remittances and large payments. The company requested the removal of the 1 million yen transfer and holding cap and the buyback measures for the fourth type of electronic payment method (RLUSD in their offerings), which requires equivalence with Japanese regulations.

The company also presented its achievements in lending electronic payment methods, showing a loan balance of approximately 10.7 billion yen from customers as of October. The breakdown includes 7.65 billion yen for JPYSC and 3.06 billion yen for USDC, with the latter setting a loan cap of 5,000 USDC per solicitation considering the 1 million yen cap. Regarding the current situation where business regulations are undecided, the company expressed that regulations similar to those for cryptocurrencies would enhance customer confidence.

Zenginkyo Calls for "Extremely Cautious" Consideration

Zenginkyo expressed the view that simply removing or relaxing the cap while maintaining the current framework of the second type of fund transfer business should be "extremely cautiously considered." The second type requires the safeguarding of user funds within three business days from the end of the calculation period, which could exceed 10 calendar days if weekends and holidays are included. They also pointed out that if a business using traditional escrow fails, it could take at least 170 days for users to receive their funds.

Zenginkyo highlighted the risk of a "digital run" where redemption requests concentrate in a short time for electronic payment methods that can be transferred 24/7, as well as risks related to anti-money laundering measures. They stated that high-value transactions should fundamentally be conducted under the first type of fund transfer business, which requires licensing. Regarding the issuance of the first type of electronic payment method by deposit-taking financial institutions, they indicated that there is currently no clear need to proceed immediately.