Japan securities law

Japan ico lawThe securities laws in Japan are governed by Financial Service Authority (FSA) of Japan. The securities law was passed in 1948 and would affect the token issuance.

From the below definition a utility token would be not be a problem and therefore a number of Japanese ICO’s offerings should not be a problem if they are not recognised as a security according to the Financial Instruments and Exchange Act (Act No. 25 of 1948).

The definition of securities are:

(1) The term “Securities” as used in this Act means the following:

(i) national government bonds;

(ii) municipal bonds;

(iii) debentures issued by a juridical person under a special act (excluding those listed in the following item and item (xi));

(iv) specified bonds prescribed in the Act on the Securitization of Assets (Act – 6 – No. 105 of 1998);

(v) bonds (including those issued by a mutual company; the same shall apply hereinafter);

(vi) investment securities issued by a juridical person under a special act (excluding those listed in the following item, item

(viii) and item (xi));

(vii) preferred equity investment certificates prescribed in the Act on Preferred Equity Investment by Cooperative Structured Financial Institutions (Act No. 44 of 1993; (hereinafter referred to as the “Act on Preferred Equity Investment”);

(viii) preferred equity investment certificates and securities indicating preemptive rights for new preferred equity investment prescribed in the Act on the Securitization of Assets;

(ix) share certificates and share option certificates;

(x) beneficiary securities of investment trusts or foreign investment trusts prescribed in the Act on Investment Trust and Investment Corporation (Act No. 198 of 1951);

(xi) investment securities or investment corporation debentures, or foreign investment securities prescribed in the Act on Investment Trusts and Investment Corporations;

(xii) beneficiary securities of loan trusts;

(xiii) beneficiary securities of specific purpose trusts prescribed in the Act on the Securitization of Assets;

(xiv) beneficiary securities of beneficiary securities issuing trusts prescribed in the Trust Act (Act No. 108 of 2006);

(xv) promissory notes which have been issued by a juridical person in order to raise funds necessary to operate its business and are specified by a Cabinet Office Ordinance;

(xvi) mortgage securities prescribed in the Mortgage Securities Act (Act No. 15 of 1931);

(xvii) securities or certificates which have been issued by a foreign state or foreign person and have the nature of securities or certificates listed in items (i) to (ix) or item (xii) up to the preceding item (excluding those specified in the following item);

(xviii) securities or certificates which have been issued by a foreign person, indicate a beneficial interest of a trust in which loan claims held by persons engaging in banking business or persons otherwise conducting money loan in the course of trade are entrusted, or indicate any other similar rights, and are specified by a Cabinet Office Ordinance;

In addition all of these items are listed as securities:

1 Beneficiary interests in foreign trusts.

2 Partnership interests in general or limited partnership companies

3 Partnership interests in foreign corporations with the attributes of interests defined in any of the as designated by government ordinance, or interests in limited liabilities companies.  

4 Interests in collective investment schemes as comprehensively defined

5 Interests in foreign collective investment schemes

6 Other ordinance government by designated as interests

Hiring ICO Lawyers

When should you hire a lawyer for your ICO? Obviously a lawyer will say that you should do this right away and put down your retainer.

ico lawyers

The truth is that what you need to do is read up about token sales and the legal implications around the difference between a security and a utility token.

The main function around your lawyer is helping you with structuring of your legal entities and ensuring you are using the correct legal entities in the proper jurisdictions.

You will also need to make sure all your marketing material, white paper, legal contracts and preico sale contracts are also inline with the legal jurisdiction etc. are going to be good enough to keep you out of trouble.

In terms of cost of appointing lawyers there is usually an upfront cost and a project fee based on a fee plus tokens for doing your ICO successfully. Even if you do negotiate a deal with a lawyers for only payment in tokens there is still costs around setting up structures and entities which has real costs to external entities.

With this in mind make sure you have enough funding for the legal structures and resources to do your legal work and don’t rely purely on your tokens as a way to get through to your ICO.

Utility tokens vs security tokens

One of the biggest issues around ICO’s is that of a utility token vs a security token.

First lets go into what makes a token a security or a utility token.

The main test you should consider is the Howey test, which is used in the USA to determine if a instrument is a security or not.

The Howey test ask’s 4 main questions:

  • Is the token an investment of money?

This is why ICO’s only accept digital currency

  • There is an expectation of profits from the investment?

This is why in the fine print of properly run ICO’s the purchase of tokens is deemed to be a donation and hence the reason many of the ICO’s are run by non-profit foundations.

  • The investment of money is in a common enterprise?

The definition of “common enterprise” has had federal courts using different interpretations. Usually “common enterprise” has been define as one that is horizontal, meaning that investors pool their money or assets together to invest in a project.

  • Any profit comes from the efforts of a promoter or third party?

The people involved in the ICO technically can’t make any money from this ICO.

The final factor comes from how profit originates. If the token comes about due to factors outside of the investor’s control then the investment might be a security. However if the investor’s own actions largely dictate profitability then the investment is probably not a security.

I have also been told that the token cannot pay profits, royalties, dividends, have equity, debt, etc. basically any monetary value as this would obviously be a security.


Why a token security is bad

Whats the big deal is the token is a security any way? If the token is deemed to be a security then a number of laws apply then for instance in the US there will be:

  1. Restrictions around trading the securities
  2. Rule 144 will restrict issuances around the securities
  3. Regulation S will restrict selling efforts around the security

See more at wikipedia.

The fact is that much of the appeal around the ICO will be diminished if you have a token security (liquidity, lack of regulation, etc.).

Also the punishments meted out around trading in securities illegally are stiff.

ICO legal

Punishment for breaking securities law

The punishment will depend on the crime and there are a number of different issues that could arise:

  • Misrepresentation or omission of important information about securities
  • Manipulating the market prices of securities
  • Stealing customers’ funds or securities
  • Violating broker-dealers’ responsibility to treat customers fairly
  • Insider trading (violating a trust relationship by trading on material, non-public information about a security)
  • Selling unregistered securities.

There are two penalties that the SEC can issue:

  • Civil monetary penalties which are based on monetary fines
  • Administrative penalties include cease and desist orders, suspension or revocation of broker-dealer and investment advisor registrations, censures, bars from association with the securities industry, civil monetary penalties, and disgorgement.

In addition local federal law could prosecute as well based on their legal restrictions.



Singapore Cryptocurrency regulations


Blocks Ventures is based in Singapore and obviously any regulatory announcements around this are important.

So when news from the Singapore MAS comes out this is important.  So when Mr. Shanmugaratnam stated that the MAS has determined cryptocurrency and ICOs to fall outside of its current financial legislation this was an interesting statement.


There is still a need to determine if tokens being traded are utilities or securities, which can be done based on each tokens rights, function etc.

You can do both tokens legally but there are caveats to how you can do this.

In Singapore the most interesting piece of regulation is the Singapore MAS Small Offerings exemptions legislation:


The takeaways from this legislation is that you can offer a security with the following rules:

  1. Less than S$5m
  2. Up to 50 investors
  3. Investors can’t sell for 6 months
  4. Company cannot issue another offering for 12 months

The utility argument is more based around the fact that the utility token is basically a product and not have security features. The best way to determine whether a token is a security or not is to do a Howey Test which is the test used by US regulators to determine is a instrument/product is a security or not.

The main questions in a Howey test are:

  1. It is an investment of money?
  2. There is an expectation of profits from the investment?
  3. The investment of money is in a common enterprise?
  4. Any profit comes from the efforts of a promoter or third party?

Disclaimer please consult with a lawyer to determine what you are doing is a utility, security etc. By no means take this as a formal legal opinion.