Japan’s top regulator wants to regulate crypto under stricter financial laws

Japan’s primary securities regulator, the Financial Services Agency, has unveiled a set of proposed rules that would tighten oversight of crypto assets by aligning them more closely with traditional financial instruments.

Local reports on Tuesday confirmed that with the new set of regulations, the FSA plans to bring cryptocurrencies under the Financial Instruments and Exchange Act (FIEA) instead of the current Payment Services Act. 

This proposed change would mark a major realignment and comes as concerns over investor protection, market integrity, and the evolving role of digital assets within Japan’s financial ecosystem have grown over the past months.

How will Japan’s FSA regulate crypto?

According to the policy paper released by the FSA secretariat, the agency believes many of the issues surrounding crypto investment, ranging from unclear white papers and misleading disclosures to investment fraud and lax security protocols, closely mirror the problems historically dealt with under the FIEA.

As such, the FSA argues that it may be “appropriate to address them using the mechanisms and enforcement of the Financial Instruments and Exchange Act.”

Currently, cryptocurrencies in Japan are primarily regulated under the Payment Services Act, which treats them more like a means of payment than a financial asset class.

Regulations are much lighter at the moment for exchanges and issuers, and the framework primarily focuses on operational safety and anti-money laundering standards rather than investor disclosures or market conduct.

However, if the proposal is enforced and cryptocurrencies are indeed regulated under the FIEA Act, crypto projects that raise funds, such as through token sales or ICOs, could face more rigorous disclosure rules similar to those required for traditional securities offerings. 

Issuers would be mandated to provide detailed information about the nature of the token, its use case, and potential risks, closing the information gap between developers and investors. 

Additionally, the FIEA would give regulators the authority to crack down on unregistered brokerages and unfair trading practices, including through emergency injunctions.

Crypto appetite in Japan is growing

While Japan’s regulatory stance has long been seen as progressive compared to other countries, its crypto market remains relatively modest in scale. 

As per the latest information cited by the FSA, over 12 million accounts are registered with domestic exchanges, with total user balances exceeding 5 trillion yen (around $33.7 billion). 

Still, the majority of retail traders hold relatively small balances, with over 80% of accounts containing less than $675 in assets.

That might seem a bit muted on the surface, but underneath, crypto penetration among Japanese investors has quietly grown.

Roughly 7.3% of investors in Japan reportedly hold some form of cryptocurrency, more than those trading in foreign exchange or corporate bonds. 

Most users fall into the middle-income bracket, and a striking 86% say they are in it for the long haul.

Long time coming

Tuesday’s developments follow months of escalating regulatory discourse. Back in June 2025, the FSA formed a dedicated working group to explore the transition of crypto regulation under the FIEA.

At the time, the FSA also floated the possibility of introducing a flat 20% capital gains tax on crypto assets, putting them on par with stock investments and moving away from the current progressive tax structure, which can climb as high as 55%.

A month later, in July, the agency convened a panel of academics, tax experts, and industry leaders to examine the classification of digital tokens and assess the need for modernized legal frameworks.

Discussions at the time revolved around distinguishing between fundraising tokens, such as those issued in ICOs, and high-cap assets like Bitcoin and Ethereum, which would remain primarily under exchange supervision.

While the report released this week is not legally binding, it serves as a formal recommendation to Japan’s Financial System Council, an advisory body to the Financial Services Minister. 

Should the council adopt the FSA’s recommendations, formal legislation could follow as early as 2026, marking a new chapter in Japan’s approach to digital finance.