Japan’s Financial Services Agency (FSA) has proposed a major regulatory overhaul for the cryptocurrency sector, aligning its governance with the Financial Instruments and Exchange Act (FIEA). This shift moves crypto assets from the Payment Services Act, aiming to bolster investor protection and harmonize regulatory standards. The FSA emphasized that many challenges in the crypto space—such as unclear white papers, inaccurate disclosures, unregistered operations, investment scams, and security vulnerabilities—align with issues traditionally addressed under the FIEA, making the transition both logical and necessary [1].
The report, while not legally binding, serves as an internal recommendation for the Financial System Council, a formal advisory body to Japan’s Financial Services minister. Should the proposal gain traction, it would impose strict disclosure requirements on crypto issuers regarding public offerings and secondary distributions, effectively reducing the information asymmetry between issuers and investors. Additionally, the FIEA’s enforcement mechanisms would extend to crypto intermediation, brokerage, and rules against unfair trading. These measures would include emergency injunctions against unregistered businesses, enhancing market integrity [1].
The FSA’s proposal reflects the growing importance of crypto in Japan’s economy. With over 12 million accounts opened at domestic exchanges and user deposits exceeding 5 trillion yen ($33.7 billion), cryptocurrency has become a significant financial asset for many Japanese investors. The report notes that small-scale trading dominates the market, with more than 80% of accounts holding less than $675. Despite this, 7.3% of those with investment experience own crypto, a figure higher than those trading FX or holding corporate bonds. The majority of holders are middle-income earners, and 86% of users expect long-term price appreciation, indicating a speculative yet growing market [1].
Finance Minister Katsunobu Kato has also voiced support for the inclusion of crypto in diversified investment portfolios. He acknowledged the high volatility of crypto assets but emphasized the importance of establishing a proper investment environment to mitigate risks. This aligns with the FSA’s broader goal of integrating crypto into the formal financial framework while ensuring transparency and consumer protection [1].
Under the FIEA, crypto is already treated as a financial instrument when used as an underlying asset for derivatives. Expanding its application to the entire crypto ecosystem would bring greater regulatory clarity to both issuers and traders. The FSA highlighted that FIEA rules could enforce transparency in market operations, reduce fraudulent activities, and provide a robust legal framework to govern unregistered trading platforms. Such enforcement mechanisms would include emergency measures against unlicensed operations and increased oversight of trading platforms [1].
Japan’s proposed regulatory shift reflects global trends in crypto governance. As institutional interest in crypto assets continues to rise—particularly with the approval of spot bitcoin ETFs in the U.S.—Japan’s FSA is positioning the country to remain competitive in the evolving digital asset landscape. The report’s emphasis on long-term stability and investor protection suggests a measured approach to integration, avoiding the boom-and-bust cycles seen in other markets. If implemented, these changes could enhance trust in the crypto market and encourage broader adoption among institutional and retail investors alike [1].
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[1] Japan regulator proposes crypto rule overhaul in line … (https://cointelegraph.com/news/japan-crypto-regulation-overhaul-securities-law)
AloJapan.com