The FSA wants to shift crypto regulation under the FIEA to strengthen investor protection.
Japan’s FSA proposes stricter oversight of cryptocurrencies under securities law.
Photo Credit: Unsplash/Illiya Vjestica
In an attempt to protect investors and treat cryptocurrencies like securities, Japan's Financial Services Agency (FSA) has proposed shifting crypto oversight from the Payment Services Act to the stringent Financial Instruments and Exchange Act (FIEA). It was presented as an internal report to the Financial System Council, and it aims to address issues such as improper white papers, inaccurate disclosures, unregistered operations, scams, and security flaws in crypto exchanges. If the proposal is implemented, the government would formally amend legislation to bring crypto under securities-style enforcement.
Although the FSA's briefing is not final, it signals a potential regulatory overhaul if the Financial System Council and government are in agreement. This transition would bring cryptocurrencies under the purview of the FIEA, imposing complete disclosure obligations on issuers for public offerings and secondary distributions, thus reducing information asymmetry between them and investors.
The proposal has been brought forward amid a booming crypto environment in Japan. As per the FSA report, there are over 12 million active users on domestic cryptocurrency exchanges, with total user deposits exceeding JPY 5 trillion (roughly Rs 2.8 lakh crores), nearly one account for every 10 people. Despite this, most retail accounts are low-scale, with 80 percent of accounts holding under $675. Meanwhile, 7.3 percent of traders with investment experience hold crypto. Most of these traders are investing for long-term gains.
The urge for reforms follows after comments by Finance Minister Katsunobu Kato, who acknowledged that crypto assets can serve as an alternative for diversified investments within a proper regulatory framework, despite their volatility.
Meanwhile, the FSA is also exploring broader reforms, including reclassifying crypto as a financial instrument to enable crypto ETFs and potentially applying a 20 percent capital gains tax.
Beyond regulations, Japan plans to reorganise the Financial Services Agency in FY 2026 by creating a dedicated bureau for digital assets, part of a wider push to strengthen governance over crypto and asset management.
These developments indicate a shift in Japan's financial markets toward integrating cryptocurrency, balancing innovation with investor security, and possibly setting a regional benchmark for digital asset regulation.
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