Japan Approves Regulatory Shift to New Framework Despite Industry Concerns

Core Insights - Japan's Financial Services Agency (FSA) has completed a regulatory overhaul, moving crypto assets from the Payment Services Act to the Financial Instruments and Exchange Act (FIEA), impacting over 13 million domestic crypto accounts with deposits exceeding 5 trillion yen [1][2][6] - The reform aims to enhance investor protection amid rising fraud cases, but industry leaders warn that increased compliance costs may threaten the viability of Japan's digital asset sector [1][3] Regulatory Changes - The FSA's Working Group has drafted a report recognizing crypto as an investment product, seeking oversight akin to traditional securities [2] - Proposed changes include stronger investor-protection tools such as standardized disclosures, unfair-trading rules, and stricter oversight of business conduct [3][4] - Mandatory contingency reserves for exchanges are introduced to protect users from hacks or unauthorized asset outflows, reflecting responses to international crypto theft incidents [3] Enhanced Disclosure and Enforcement - New disclosure rules require token issuers to provide detailed information about token supply limits, issuance schedules, governance structures, project plans, and technical risk assessments [4] - The FSA plans to combat illicit persuasion tactics by unregistered operators targeting retail investors, expanding enforcement tools including cease-and-desist orders and harsher penalties [5] Consolidation of Oversight - Oversight of crypto assets will be consolidated under the FIEA, treating them with similar rigor as stocks and bonds, with legislation expected to reach the regular Diet session in 2026 [6]