Core Viewpoint - Japan is initiating a comprehensive overhaul of its cryptocurrency regulations, transitioning to a framework that aligns digital assets more closely with traditional investment products, reflecting a significant shift in regulatory approach [1][2]. Group 1: Regulatory Changes - The Financial Services Agency (FSA) is moving crypto regulation from the Payment Services Act to the Financial Instruments and Exchange Act, which governs securities trading [2]. - This transition aims to place cryptocurrencies under the same legal framework as securities, enhancing investor protection and market conduct rules [2][4]. Group 2: Market Dynamics - Over 86% of domestic users engage in crypto trading with expectations of long-term price gains, indicating a shift towards investment rather than mere speculation [3]. - Deposits across registered platforms have exceeded five trillion yen, highlighting significant investor interest and inflows into the crypto market [3]. Group 3: Disclosure and Compliance - Stricter disclosure requirements will be imposed on token sales, including pre-sale information, independent code audits, and clear project control descriptions [4]. - Insider-trading rules will be established for events like token listings and major system breaches, applying to exchange employees and token developers [5]. Group 4: Exchange Operations - Exchanges will be required to assess users' risk tolerance before allowing complex or volatile trading, aligning their operations with those of traditional securities brokers [6].

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]