Japan Reveals Landmark Shift in Crypto Asset Regulation

Japan's Financial Services Agency (FSA) announced on 2 September 2025 a landmark shift in crypto asset regulation, aiming to enhance investor protection by bringing digital assets under the country's main securities law, the Financial Instruments and Exchange Act (FIEA).

This move from the current Payment Services Act framework is driven by the increasing use of crypto as an investment and the urgent need to address fraudulent solicitations and security risks facing consumers.

Key aspects of the proposal include:

• Higher Business Standards: Crypto exchange services would be regulated under rules equivalent to a "Type 1 Financial Instruments Business," holding them to the same high standards as traditional securities brokers. This includes stricter rules for conduct and customer protection.
• Enhanced Information Disclosure: A new two-tiered system is proposed to combat information asymmetry. For crypto issued to fund projects, the issuer must provide detailed disclosures. For assets without a specific issuer (like Bitcoin), the exchanges handling them will be responsible for providing key information to investors.
• Stronger Enforcement: The shift to the FIEA would provide authorities with more robust enforcement tools, including harsher penalties for unregistered operators and the ability to issue emergency injunctions.
• Targeted Scope: The proposed changes would apply to crypto assets as currently defined, but explicitly exclude NFTs and digital money-like stablecoins from this review for now.

While the FSA suggests significantly strengthening business conduct rules, it does not currently see a need to impose strict market-opening regulations (like those for a stock exchange) on crypto trading platforms.

This proposal signals a move towards a more mature and secure crypto market in Japan, aligning digital asset oversight with established financial principles.