Main Points :
- Japan FSA will migrate crypto regulations from the Payment Services Act to the Financial Instruments and Exchange Act (FIEA), creating a unified, securities-like framework.
- Centralized tokens will face strict disclosure rules, including project plans and use of proceeds.
- Insider trading rules will now apply to crypto, including large off-market sales and DEX transactions.
- ICO/IEO investments will be capped for retail investors unless audited financials are provided.
- Cold-wallet assets will also require compensation reserves and insurance.
- Banks will remain prohibited from selling crypto, but subsidiaries may fully enter issuance, brokerage, and investment management.
- Industry expresses concern that excessive regulation may stifle innovation in Japan.
- Japan continues to work toward a stable regulatory–growth balance, including tax reforms such as the ongoing discussion on 20% separate taxation.
1. Introduction: Japan Prepares for the Next Phase of Digital Asset Regulation
Japan’s Financial Services Agency (FSA) has taken one of the most decisive steps in global crypto regulation by proposing a complete overhaul of its framework. The reform, formulated by the Financial Council’s working group (WG) on November 26, 2025, aims to restructure crypto asset rules by integrating them fully into the Financial Instruments and Exchange Act (FIEA)—the same law that governs securities, derivatives, and financial instruments in Japan.
This shift reflects the evolution of crypto assets from alternative payment tools into a global investment market. The FSA now intends to shift away from treating crypto merely as a payments medium and instead fully recognize its investment function—while aggressively reinforcing investor protection.
2. Japan’s Move Toward FIEA: A Unified Legal Framework
Under the new plan, all crypto asset regulation will migrate from the Payment Services Act to FIEA. This regulatory shift redefines the compliance landscape for exchanges, custodians, issuers, and brokerage services.
Key regulatory upgrades:
- Stronger penalties for unregistered crypto operations
→ Raised from imprisonment up to 3 years / $20,000 fine to up to 5 years / $35,000 fine. - Insider trading and market fairness rules extended to crypto.
- A new definition of crypto assets:
- Decentralized tokens (e.g., BTC): no issuer
- Centralized tokens: issuer exists → must disclose business plans and fund usage
- Cold-wallet assets included in compensation reserve requirements.
This makes Japan one of the strictest but clearest regulatory jurisdictions globally—similar to the EU’s MiCA but even more granular regarding disclosure, insider trading, and custodial obligations.
3. Chart: Japan’s Crypto Regulatory Timeline
4. Centralized vs. Decentralized Tokens: New Mandatory Disclosures
The WG report introduces a formal two-category system:
4.1 Decentralized Tokens
- No issuer
- No obligation for issuer disclosures
- Bitcoin (BTC), Litecoin (LTC), etc.
4.2 Centralized Tokens
- Issuer exists
- Mandatory disclosures include:
- Use of proceeds
- Business roadmap
- Financial data
- Token distribution and lockups
This represents a shift toward equity-like treatment. Issuers will be held accountable much like companies offering securities.
5. Chart: Token Classification under New FSA Rules
6. Insider Trading Regulations Extended to Crypto
One of the most impactful reforms is the introduction of crypto insider trading rules.
Regulated “material events” include:
- Issuer bankruptcy
- New listing or delisting
- Large holder selling over 20% of circulating supply
- Major protocol changes or vulnerabilities
The scope is extremely wide:
- Applies to centralized exchanges
- Applies to OTC trades
- Applies to DEX transactions
- Applies even to private wallet-to-wallet deals
Japan thus becomes one of the first jurisdictions to explicitly extend insider rules to DeFi and off-exchange markets.
Disclosure rules
Material disclosures cannot be made on SNS (“X”, Telegram, Discord”).
Only announcements via:
- Licensed exchanges
- JVCEA (industry SRO)
This aims to end the “Twitter-driven market manipulation” phenomena.
7. ICO/IEO Restrictions and Investment Caps
Japan plans to introduce strict caps on retail investments in ICO/IEO projects if the issuer has not undergone a certified public accountant audit.
Per-investor maximum investment limits:
- 5% of net worth
- 5% of annual income
- $3,300
Whichever is highest, but capped at $13,000.
Additional requirements:
- Lock-up periods
- Prohibition of preferential allocation to insiders
- Mandatory disclosures
- JVCEA review before listing
This moves Japan closer to a security-token model even for utility tokens.
8. Exchange Obligations Strengthened: Cold Wallet Coverage
Until now, compensation reserves applied only to hot-wallet balances.
Under the reform, compensation reserves or insurance coverage will also be required for:
- Cold-wallet assets
- Ledger-based custody arrangements
- Institutional-grade storage
This is a major burden for smaller exchanges but provides superior consumer protection.
Additional obligations:
- Wallet software providers must be registered and meet conduct rules
- Lending (staking or rehypothecation) becomes fully regulated under FIEA
This closes loopholes seen in international failures such as Celsius and Voyager.
9. Banks, Insurance Companies, and Institutional Participation
9.1 What banks still cannot do
Banks themselves still cannot:
- Sell crypto assets directly to consumers
- Issue their own tokens for public sale
9.2 What banks’ subsidiaries can do
Subsidiaries can:
- Issue tokens
- Operate crypto exchanges
- Conduct brokerage
- Provide crypto asset management
- Hold crypto for investment purposes
This aligns Japan with the U.S. institutional trend following spot Bitcoin ETF approvals.
10. Japan’s Stance on DEX: Monitoring but No Direct Regulation Yet
Japan recognizes that:
- DEX smart contracts are difficult to regulate
- Many operators are non-existent or anonymous
- Code is often immutable
- Jurisdiction is unclear
Thus Japan will not regulate DEX directly for now, but will:
- Strengthen penalties for unlicensed foreign exchanges targeting Japanese users
- Increase warnings against DEX use
- Enhance cross-border surveillance
- Cooperate with FATF and international bodies
11. Industry Responses: Innovation vs. Regulation
Industry associations, including JBA and JVCEA, warn that:
- Over-regulation may suffocate Japanese startups
- 90% of domestic exchanges are already unprofitable
- Compliance costs may exceed revenue
bitFlyer co-founder Yuzo Kano even described the current regulatory–innovation ratio as:
“Innovation = 1 : Regulation = 9”
The FSA acknowledges these concerns and promises to avoid overburdening exchanges.
12. FSA’s Balance: Investor Protection and Innovation
The FSA emphasizes:
- Crypto is increasingly an investment asset
- Fair markets are essential to prevent fraud
- Proper regulation fosters long-term market growth
They stress that the reform does not give crypto official endorsement (“お墨付き”)
but rather aims to create a healthy environment.
13. Tax Reform and Compensation Fund Requirements
The ruling party’s tax panel is considering 20% separate taxation for crypto trading profits, similar to Japan’s tax rate for stock gains.
Meanwhile FSA is working on:
- “Compensation reserve funds” for hacking
- Mandatory insurance
- Stronger auditing rules
This is in response to multiple major exchange hacks over the past decade.
14. Conclusion: What This Means for Investors, Builders, and Global Markets
Japan’s new crypto regulatory overhaul signals:
- Stronger investor protection
- Comprehensive market-fairness rules
- Institutional-grade compliance
- Increased costs for exchanges
- Clearer token classification
For global investors, Japan is becoming:
- One of the safest regulated markets
- A model for other countries facing the challenge of regulating decentralized technologies
- A jurisdiction where institutional adoption may accelerate due to clarity
However, the burden on smaller players raises concerns that innovation may shift overseas—unless Japan successfully balances regulation with growth.
Japan’s next steps toward 2026 will shape not only its domestic crypto industry but also the global regulatory trend.
