On November 7, during the fifth meeting of the Financial System Council’s Working Group on Cryptocurrency Systems, regulators discussed plans to bring crypto lending under the Financial Instruments and Exchange Act. Their goal is to strengthen investor protection and promote fairer market practices in crypto lending services.
Closing the Loopholes
Currently, crypto firms that manage assets or offer staking services are required to register as crypto exchanges. However, some businesses have circumvented this rule by characterizing their services as "borrowing" rather than asset management. This legal ambiguity allows them to operate without the same level of oversight as registered exchanges.
The Financial Services Agency (FSA) has identified a clear concern: when users lend out their cryptocurrency, they assume risks such as borrower default or token price depreciation. Yet, the companies facilitating these services do not face the same obligations as licensed exchanges. They are not mandated to keep customer funds separate, a practice known as segregated management, nor are they required to store assets in cold wallets, which are offline storage solutions designed to protect cryptocurrency from cyber threats.
Japan’s Financial Services Agency (FSA) discussed plans to tighten regulations on crypto lending, bringing it under the Financial Instruments and Exchange Act to close existing loopholes and mandate stronger risk and custody controls. The agency also proposed investment limits…
— Wu Blockchain (@WuBlockchain) November 7, 2025
This absence of safeguards has already led to issues. Some platforms have advertised excessively high returns, promising up to 10% annual interest while imposing lengthy lock-up periods for repayments. Other platforms have demonstrated weak risk management, failing to account for losses stemming from sub-lending or slashing, a penalty where staked assets are partially confiscated.
A New Framework for Safer Markets
Under the proposed new regulations, the FSA intends to require crypto lending businesses to implement more robust risk controls. This will include conducting due diligence on their lending partners, clearly communicating risks to customers, and enhancing the transparency of advertised returns. These measures are designed to prevent misleading promotions and empower investors to make well-informed decisions.
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— Crypto News Hunters 🎯 (@CryptoNewsHntrs) November 7, 2025
It is important to note that these regulatory changes will not affect institutional players; transactions between large investors will remain outside the scope of these new rules. The primary focus is on safeguarding everyday users who may not fully comprehend the risks associated with lending or staking digital assets.
This regulatory development aligns with a broader global trend. Following the collapses of major lending firms such as Celsius and BlockFi in 2022, which resulted in billions of dollars in customer funds being lost, regulators in both the United States and Europe have intensified their oversight of the cryptocurrency sector.