Japan’s FSA Plans Major Crypto Regulations to Enhance Consumer Protections

By Jessica Huang

Japan’s Financial Services Agency (FSA, 金融庁) is planning to amend the Financial Instruments and Exchange Act to classify cryptocurrencies as financial products, according to a report by the Nikkei business daily on March 30, 2025. The proposed changes, which may be submitted to Japan’s parliament in 2026, would subject crypto assets to insider trading regulations, prohibiting transactions based on non-public information. The Nikkei did not specify its sources for the report. The FSA has been exploring these adjustments through discussions with experts, reflecting a broader effort among regulators worldwide to adapt to the growing presence of digital assets.
This initiative aligns with recent regulatory developments in other countries. In the United States, the Commodity Futures Trading Commission (CFTC) announced last week that digital asset derivatives will be regulated similarly to other financial products. Around the same time, the Federal Deposit Insurance Corp. (FDIC) issued guidance allowing banks under its oversight to engage in crypto-related activities without prior approval, provided they address associated risks. FDIC Acting Chairman Travis Hill described this as a shift from the agency’s approach over the past three years, noting plans for additional guidance in collaboration with other banking regulators. The Office of the Comptroller of the Currency (OCC) also recently updated its policies, permitting national banks and federal savings associations to participate in certain crypto activities and emphasizing standard risk management practices.
In Japan, the FSA has already taken steps to refine its oversight of digital currencies. On March 7, 2025, the agency submitted a bill to the National Diet to revise the Payment Services Act, which governs stablecoins and cryptocurrencies. This legislation proposes changes such as allowing trust-style stablecoins to hold up to 50% of their reserves in term deposits or government bonds, rather than solely in demand deposits, as long as the one-to-one peg is maintained. It also seeks to enable regulators to require all crypto exchanges, including those handling only spot transactions, to keep client assets in domestic custody, a measure aimed at improving bankruptcy protections. Currently, such requirements apply only to exchanges offering derivatives, a distinction that emerged after the FTX collapse in 2022 spared FTX Japan users due to prior regulatory orders.
The Payment Services Act bill further introduces a new intermediary category: brokers who connect clients to crypto exchanges without operating as exchanges themselves. Unlike the current system, where such brokers must register as exchanges, these intermediaries would not hold client funds or perform anti-money laundering checks, responsibilities that would remain with the exchanges. They would, however, need to comply with advertising restrictions and provide clients with asset and risk information. This framework could also apply to stablecoin transactions.
Stablecoins are still emerging in Japan. The existing Payment Services Act allows banks, money transfer businesses, and trust companies to issue them, with trust companies seen as likely leaders due to their ability to issue stablecoins for third parties. Mitsubishi UFJ Trust, for instance, has reportedly discussed stablecoin projects with Binance. Meanwhile, SBI VC Trade recently became the first Japanese exchange licensed as an “Electronic Payment Instruments Exchange Service Provider,” enabling it to handle foreign stablecoins like USDC.
The collapse of Mt. Gox in 2014, one of the earliest major exchange failures, highlighted the risks of inadequate oversight in Japan's crypto sector. The FTX bankruptcy in 2022, which was caused by by mismanagement, lack of financial controls, and alleged fraud by its leadership, particularly Sam Bankman-Fried (SBF), further highlighted the  importance of local asset custody, though this protection was limited to derivatives platforms under existing rules. The proposed changes to the Payment Services Act aim to extend similar safeguards to spot-only exchanges, addressing a gap in the current framework and aiming to prevent similar incidents in the future.
The FSA’s efforts to revise both the Financial Instruments and Exchange Act and the Payment Services Act indicate a coordinated and comprehensive approach to regulating digital currencies in Japan. By treating crypto assets as financial products, the agency seeks to apply established rules against insider trading to this market. Concurrently, updates to stablecoin reserve requirements and custody rules aim to enhance user protections, drawing on past experiences with exchange failures. These bills, if passed, could influence how Japan manages its crypto sector moving forward.
Internationally, regulatory approaches to cryptocurrencies are evolving. The CFTC’s decision on derivatives, the FDIC’s risk-focused guidance, and the OCC’s clarified permissions reflect a global trend toward integrating digital assets into existing financial systems. Japan’s proposed reforms fit within this pattern, addressing the opportunities and challenges of cryptocurrencies. The country’s earlier experiences with Mt. Gox and FTX Japan have informed its focus on custody and consumer protection, while the shift to recognize crypto as a financial product aligns with efforts in other jurisdictions.
As these legislative proposals progress through Japan’s parliament, their outcomes could set a precedent for other nations navigating similar issues. The global regulatory environment for digital currencies remains fluid, with agencies adapting to technological and market developments. In Japan, the FSA’s actions suggest an intent to balance the growth of the crypto sector with the need for oversight, leveraging lessons from past incidents to inform future rules. How these changes unfold will depend on legislative approval and implementation, but they mark a notable step in Japan’s ongoing engagement with digital assets. The interplay between Japan’s reforms and those in other countries, such as the U.S., will likely shape the broader trajectory of cryptocurrency regulation in the coming years, potentially influencing global regulatory trends.

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