Japan’s Financial Services Agency (FSA) announced on September 24 its plans to reform regulations related to crypto games, according to Nikkei. The FSA first introduced amendments specific to crypto regulations in 2016 under the Payment Services Act (PSA), which regulates all kinds of digital transactions, from credit cards to crypto exchanges and assets.
The regulatory reforms enacted by the FSA could help more companies adopt cryptocurrencies and enter the gaming market, as play-to-earn (P2E) games are increasing in popularity. The FSA is also reported to have initiated a working group for the amendment of the Fund Settlement Act, which brought in its first regulation on stablecoins in Japan in 2022. Under this act, game operators are required to comply with the prepaid payment instruments regarding their in-game currencies and rewards. Operators are also required to ensure that the legal treatment of the in-game currencies meets conditions such as value preservation, fee payment, and issuance of consideration. In addition, the Japanese Premiums and Representative Act overseas shows how in-game prizes are valued and marketed to ensure they do not mislead consumers.
However, regulating in-game apps has brought its fair share of challenges under the prepaid payment instruments under the Fund Settlement Act. In the case when in-game currencies are defined as a prepaid payment instrument, there is a material obligation on game operators to keep aside funds as a safeguard against bankruptcy, which is a significant financial burden. To avoid the financial strain, gaming operators often set an expiration period of up to six months for the in-game currency.
Similarly, ‘secondary contents’ such as items purchased with in-game currencies also come under the regulation, which often increases compliance complexities. Further complicating matters, companies are required to fetch a license for their in-game currencies from the exchange operators, which involves strict asset management and requires companies to prepare compensation funds, putting companies into operational burdens, highlighting why a reform on the current regulations of crypto games is needed.