The Japanese subsidiary of Morningstar has launched a new business to provide ratings of digital currencies and initial coin offerings (ICOs). While there is no law in Japan specifically targeting ICOs, their tokens can be subject to various laws such as securities laws and consumer contract law.
Morningstar Japan’s Crypto and ICO Ratings
Morningstar Japan is a subsidiary of the Chicago-based Morningstar Inc. The subsidiary develops and market products and services customized for the Japanese market. Its shares are traded on the Tokyo Stock Exchange. Its parent company provides a few ratings services including the “Sustainability Ratings for Funds” which was launched last year. The ratings help investors evaluate over 35,000 mutual funds and exchange-traded funds (ETFs) globally, worth $27 trillion in assets under management.
The company explained that there is no ICO regulation in Japan and “investor protection is inadequate.” In addition, when investing in digital currencies, investors often make investment decisions “with only a small amount of information and biased information.” With whitepapers issued by ICO companies, “investors cannot easily judge the accuracy and authenticity of the item,” Morningstar claimed.
In its announcement, the company stated that it has developed a method of evaluating cryptocurrencies and ICOs, utilizing their expertise in evaluating investment trusts and bonds. In addition to the rating business, the company plans to set up a digital currency portal site by the year’s end to provide other information such as related news and digital currency exchange comparison information.
Digital Currencies and ICOs in Japan
Since the government legalized bitcoin as a method of payment in April, the use of cryptocurrencies in Japan has been fast-growing. Recently, eleven digital currency exchanges were granted legal status by the Japanese Financial Services Agency (FSA).
Saito So, a lawyer specializing in digital currency and blockchain technology, said at an ICO Conference sponsored by Anypay on October 5 that:
There are no laws targeting ICOs itself in Japan.
Saito So of So Law Office, Japan.
However, he noted that ICO tokens may be subject to the current securities laws, so it is necessary to judge whether they are considered securities.
While some say that digital currencies are also securities under the Japanese Financial Instruments and Exchange Act, So noted that “if there is no dividend or revenue distribution like a stock by holding a token, it is unlikely that it will fall under the current regulation.” However, for tokens where dividends or revenue are distributed, there is a possibility they will be regulated as an investment fund, he elaborated.
So also pointed out that the definition of a fund is “to collect money from others, to invest in the business, to pay dividends to investors, etc.” It is not “money,” therefore, if an ICO is funded by bitcoin or ether, it is not a fund by definition. Nonetheless, he said there is a possibility that ICOs will be subject to regulation in the future, especially if they are misused.
Furthermore, an ICO contract could be canceled and compensation for damages may occur based on consumer contract law and civil law. Subsequently, he suggested that ICO token issuers should consider all relevant laws such as the virtual currency law, the prepaid payment instrument regulation, and the fund regulation.
What do you think of Morningstar Japan’s new ratings business for digital currencies and ICOs? Do you think Japan will soon come up with specific laws for ICOs? Let us know in the comments section below.
Images courtesy of Shutterstock, Morningstar, and So Law Office.