Japanese financial regulators are contemplating a significant change in how digital currencies are governed. The Financial Services Agency (FSA) is suggesting a move to oversee cryptocurrencies under the Financial Instruments and Exchange Act (FIEA), instead of the existing Payment Services Act. This potential shift was discussed during a Financial System Council working group meeting on September 2nd and aims to bring cryptocurrency regulation more in line with securities law, thus improving transparency and safeguarding investors [1]. The FSA believes this adjustment would better reflect the growing role of digital assets as investment vehicles, rather than simply payment methods [2].
If implemented, this new framework would classify crypto assets alongside traditional securities, demanding stricter compliance and greater transparency from both those issuing and exchanging them. This is intended to curb market manipulation and resolve ongoing issues such as insufficient details in white papers, deceptive disclosures, and unregistered business operations. The FSA clarified that this regulatory update doesn’t aim to prevent the use of cryptocurrencies for payments, but rather to recalibrate their regulatory handling to acknowledge their rising significance in investment portfolios [2]. To avoid redundant regulation, the agency also proposed removing elements of the Payment Services Act that could create duplicate compliance requirements [1].
This proposal has ignited discussion among industry experts and stakeholders. Naoyuki Iwashita, a former Bank of Japan director, urged caution regarding the application of securities regulations to all crypto assets. He specifically highlighted the potential dangers associated with Initial Exchange Offerings (IEOs). Data from the Japan Crypto Asset Business Association indicates that the vast majority of domestic IEOs have lost considerable value, with some tokens experiencing declines exceeding 90% from their initial issuance price. Iwashita cautioned that classifying these assets under the FIEA could be misleading, potentially suggesting a level of stability or legitimacy that doesn’t align with actual market performance [1].
Despite these reservations, the FSA remains confident that the FIEA’s existing mechanisms can effectively address major challenges within the cryptocurrency market. These include security vulnerabilities, fraudulent activities, and the information imbalance between issuers and investors. The agency emphasized the rapid growth of Japan’s crypto sector, noting over 12 million accounts held at domestic exchanges with user deposits totaling more than 5 trillion yen (approximately $33.7 billion USD). Notably, the majority of these accounts are held by smaller retail traders, with over 80% holding less than $675, which underscores the importance of robust investor protections [2].
This FSA proposal is in harmony with the government’s broader objective of positioning cryptocurrencies as part of a well-rounded investment approach. Finance Minister Katsunobu Kato recently acknowledged the potential role of digital assets in investment portfolios, suggesting that while they are volatile, they can still contribute to financial diversification when properly regulated. The FSA intends to submit the proposed legislative amendments to the upcoming ordinary Diet session [2].
Source:
[1] Japan Considers Merging Crypto Oversight Into Securities … (https://www.mitrade.com/insights/news/live-news/article-3-1090457-20250903)
[2] Japan regulator proposes crypto rule overhaul in line … (https://cointelegraph.com/news/japan-crypto-regulation-overhaul-securities-law)