Non-Custodial Wallets’ Legal Status Revealed

• Japan’s FSA clarifies its position on non-custodial wallet services utilizing authentication technology.
• The FSA says these wallets do not qualify as crypto asset trading businesses.
• This decision seeks to eliminate legal uncertainties within the crypto industry.

Japan’s Financial Services Agency (FSA) has said that non-custodial wallet services using authentication technology are not crypto asset trading businesses. This decision, made through the “gray area elimination system,” aims to eliminate legal uncertainties within the crypto industry.

With a non-custodial wallet, users can store and manage assets securely. The wallet lets users keep complete control over their private keys, without central administrators, a decentralized approach used by industry leaders Metamask and Phantom.

The FSA’s recent judgment on non-custodial wallets was made under the Industrial Competitiveness Enhancement Act. The gray area elimination system, which is a key part of the act, aims to foster innovation by making regulatory frameworks for emerging businesses clearer. In this process, the Ministry of Economy, Trade and Industry asks the Financial Services Agency to confirm the applicable regulations.

Japan’s Regulatory Initiatives

This move comes after Japan’s reevaluation of its crypto regulatory framework. At the end of September, the FSA announced its decision to review the existing regulations to see if they are still appropriate. The regulators will focus especially on crypto taxation and domestic investment funds.

Read also: Bitcoin Rallies as Fed Cuts Rates, Bank of Japan Holds Steady

The FSA wants to reassess the rules to see if they provide adequate investor protection. The evaluation will consider the shift from primarily using cryptocurrencies for payment to investment purposes. This could lead to the reclassification of the tokens under the Financial Instruments and Exchange Act.

Also, the country plans to change its crypto gaming regulations, revising the existing Payment Services Act. The FSA wants to introduce new crypto-friendly rules for gaming to streamline the management of in-game cryptocurrencies.