Regulatory Shift from Payment Services Act to Financial Instruments and Exchange Act
Japan's Financial Services Agency released a comprehensive report on Wednesday outlining plans to transfer cryptocurrency regulation from the Payment Services Act to the Financial Instruments and Exchange Act. The Financial System Council's Working Group concluded crypto assets now function primarily as investment targets rather than payment instruments. The proposed framework would apply securities market rules to digital asset trading, issuance, and disclosure requirements. The report states that crypto transactions conducted by users resemble securities transactions, requiring investor protection measures comparable to traditional financial products. This regulatory shift follows mid-November discussions about categorizing more than 100 major cryptocurrencies as investment products.
The FSA released the proposal amid parallel considerations for tax reform that would reduce crypto trading rates from 55 percent to a flat 20 percent. The new system would mirror capital gains treatment for stocks and allow investors to carry forward losses for up to three years. The plan uses criteria including issuer transparency, technical reliability, and user safety to determine which assets qualify for securities classification. The framework gives regulators stronger tools to address unregistered trading venues and includes explicit prohibitions on insider trading.
Impact on Token Sales and Exchanges
The regulatory transition creates immediate consequences for initial exchange offerings and trading platforms operating in Japan. Under FIEA rules, exchanges managing token sales would face stricter presale disclosure requirements including identification of project teams and independent code audits. The working group emphasizes that IEOs resemble securities offerings because users purchase new assets or trade existing tokens. Exchanges must now provide documentation comparable to public securities offerings before listing new digital assets. Self-regulatory organizations would review token launches to ensure compliance with disclosure standards. The framework addresses market conduct that current payment-focused rules cannot adequately supervise.
Japan's crypto market contains approximately 32 registered exchange providers serving more than 12 million account holders as of January 2025. Customer deposits exceed 5 trillion yen across these platforms. The FSA reports that 7.3 percent of domestic investors with prior experience hold crypto assets, exceeding participation rates for foreign exchange trading or corporate bonds. Vietnam launched a comprehensive crypto pilot program requiring all transactions in Vietnamese dong and minimum capital of $379 million for licensed providers. Vietnam's structured approach may influence regional cryptocurrency policies as countries reassess how existing payment laws govern investment activity.
Regional Competition and Global Alignment
Japan's reclassification reflects a broader international trend toward treating digital assets as investment products rather than payment mechanisms. The European Union's Markets in Crypto-Assets framework and South Korea's regulations already include insider trading prohibitions that Japanese law previously lacked. Moving crypto under FIEA positions Japan alongside jurisdictions that prioritize investor protection and market integrity over payment innovation. The change could strengthen Japan's appeal for institutional investors seeking regulatory clarity in Asian markets. Traditional financial institutions gain defined pathways for entering crypto operations through partnerships with licensed service providers.
The FSA's cautious stance on foreign crypto exchange-traded fund derivatives suggests regulators remain concerned about leveraged products entering domestic markets. Officials described underlying assets for such derivatives as "not desirable" during Tuesday discussions. The agency plans to restrict access to exchanges operating without approval and bring decentralized platforms under scrutiny when identifiable operators exist. This comprehensive oversight extends beyond current payment law provisions. International crypto businesses may view Japan's framework as either an opportunity for compliant market entry or a barrier requiring substantial operational adjustments. The proposal timeline extends into 2026 as regulators refine standards for disclosure, custody, and consumer protection.