Japan FSA Proposes New Crypto Regulation Framework

Japan’s Financial Services Agency (FSA) has unveiled a proposal to overhaul the regulatory framework governing digital assets. Aiming to enhance investor protection and improve market fairness, the FSA recommends shifting the oversight of certain crypto assets from the Payment Services Act (PSA) to the Financial Instruments and Exchange Act (FIEA), which is traditionally used to regulate securities markets in Japan.

Rethinking Digital Asset Regulation

The FSA’s proposal, documented in a report released on December 10, stems from a comprehensive review conducted by the Financial System Council’s Working Group. Established in June, this group evaluated the status of digital assets with the objective of balancing user protection and promoting market innovation. Following six meetings held between July and December, the group concluded that digital assets possess characteristics that align closely with those of securities.

"The FIEA is based on the concept of building a comprehensive investor protection framework covering a wide range of highly investment-oriented financial products", explained the FSA. It emphasized that many crypto transactions reflect the investment-oriented nature traditionally addressed by the FIEA, noting that such transactions are often "conducted with the expectation of returns from price fluctuations."

The proposed shift would subject certain digital assets and the businesses trading them to stricter regulations, including enhanced data disclosure requirements and measures to ensure greater market transparency.

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Strengthening Investor Protection

Implementing the FIEA framework would introduce significant changes to how digital assets are handled in Japan. Under the FIEA, businesses dealing with securities - such as intermediaries, investment managers, and advisors - must adhere to rigorous rules, including pre-sale disclosures and independent third-party code audits. These measures aim to ensure that users have access to detailed information about crypto issuers and the entities behind digital asset offerings.

Additionally, the FIEA framework seeks to prevent unfair trade practices by enforcing robust penalties and surcharges. According to the FSA, the changes would create an environment where "users can carry out transactions with greater confidence, even for payment purposes."

The FSA also highlighted that Japan has been a global leader in crypto regulation and expressed hope that the proposed revisions would "further enhance the soundness of Japan’s crypto asset trading market and make it a more internationally trusted market."

Tokens, NFTs, and Stablecoins: What’s Affected?

While the proposal would bring certain digital assets under the FIEA, the FSA clarified that not all tokens would be subject to this framework. Non-fungible tokens (NFTs), for example, are generally excluded because they are often tied to goods or services, making them unsuitable for a uniform financial regulation approach. "Since the nature of such NFTs varies, careful consideration is required before subjecting them uniformly to financial regulations", the agency noted.

Stablecoins, on the other hand, will remain regulated under the PSA. The FSA reasoned that stablecoins, often pegged to fiat currencies and used for payments, are better suited to the PSA’s framework, which is designed for remittance and payment systems.

Additionally, the new regulations would primarily focus on domestic exchanges, as these represent the areas with the highest need for user protection and structured trading environments. The FSA acknowledged that the changes would not cover the entirety of global crypto asset trading.

Addressing Fraud and Market Challenges

The push for reform comes against the backdrop of increasing global crypto-related fraud and theft, with over $2.17 billion stolen from cryptocurrency services by July 2025, according to Chainalysis. The FSA emphasized that the regulatory review aimed to "enhance user protection by establishing regulations for financial products that correspond to the characteristics of crypto assets."

However, the regulator made it clear that strengthening regulations does not equate to an endorsement of crypto asset investment. It cautioned that care must be taken to avoid imposing excessive burdens on businesses that could diminish user convenience.

A Flexible Approach to Regulation

While the FSA’s report represents a significant step toward new regulatory standards, it also stressed the importance of flexibility. The agency stated that the revised regulations "would not necessarily be the final product" and would be "appropriately followed up in light of developments in the crypto asset trading market and related businesses."

The FSA concluded with a call for ongoing regulatory adjustments, noting that "continuous regulatory review should be conducted whenever there are gaps or excesses in regulations, taking into account advances in technology and practice."

This move represents a pivotal moment for Japan’s crypto regulations as the country seeks to balance innovation with comprehensive investor protections while maintaining its position as a leader in the global digital asset market.

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