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Inspection of Line app operator sheds light on gray zones

The financial authorities' on-site inspections of the operator of mobile phone communication app Line, for possible violations over its smartphone game items, has shed light on the expansion of "gray zones," in which it remains unclear whether legal regulations can apply, amid rapid advancement of information technology.

Online game industry sources point out that Japan has failed to develop relevant legislation to regulate online games in step with the widespread use of smartphones and the growing complexity of game mechanisms.

Users who want to play online games are required to download apps to their smartphones. Some are free, but those who buy apps or in-game currencies make payments through their handsets and use the items in games.

Most in-game currencies are interpreted as falling under the category of "prepaid payment instruments," according to online game companies, and the names and prices of their in-game currencies are registered with local financial bureaus. Under the Payment Services Act, payment instruments can be recognized as "prepaid payment instruments" if their prices and amounts are recorded and can be stored, if they are issued in return for payments and if they are used to provide goods and services.

The names of many in-game currencies, such as "coin" and "jewelry," suggest that they are assets, while examples of some other names are "chocolate," "smile" and "fish."

The Financial Services Agency judges whether they are prepaid payment instruments by examining how they are used.

So-called "secondary currencies" that are purchased with other in-game currencies instead of actual money can also be recognized as prepaid payment instruments if they meet the conditions under the law.

"Treasure chest keys" in "Line Pop," a megahit puzzle game over which the company was inspected, are bought with another in-game currency, called "Rubies," and users can receive multiple kinds of services depending on the number of keys. As such, Line Corp. insiders had pointed out that they may be secondary currencies.

Still, it remains unclear how to draw the line between numerous game items that are considered prepaid payment instruments and those that are not recognized as such. Officials of the Kanto Local Finance Bureau who inspected Line Corp.'s Tokyo office apparently focused on whether "Treasure chest keys" fall under prepaid payment instruments and what Line Corp. understood the item to be.

However, a high-ranking official of another Tokyo-based online game company has pointed out that there are instances in which government regulators cannot immediately determine whether online game items are prepaid payment instruments because the mechanisms of online games have become increasingly complex. He added that the development of relevant legislation has failed to keep up with the advancement of online games.

A Tokyo lawyer who is well versed in the Payment Services Act says, "There are illegal companies that have failed to register their online game items with local finance bureaus. From the standpoint of consumer protection, those who have doubts should consult with local finance bureaus."

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