Japan’s FSA Proposes Shifting Crypto Regulation From PSA FIEA to Strengthen Disclosures

Quick Breakdown

• Japan plans to move crypto oversight from the Payment Services Act to the FIEA, treating them as securities.
• Regulatory shift underpins prior plans to classify 105 crypto assets as financial products, enforcing stricter disclosures and compliance rules.
• FSA warns against CFDs tied to overseas crypto ETFs with weak disclosure rules.

Japan Reclassifies Crypto, Tightens Market Oversight

Japan is set to roll out one of its most significant crypto regulatory overhauls in years, as the Financial Services Agency (FSA) plans to transfer oversight of crypto assets from the Payment Services Act (PSA) to the Financial Instruments and Exchange Act (FIEA).

The plan, detailed in a report from the FSA’s working group, positions crypto not as a payment tool but as an investment product that demands the same transparency standards expected for traditional securities.

Japan’s Financial Services Agency Report. Source: FSA website

The draft from the working group emphasized that the current rules no longer match how digital assets are actually used.

Regulators noted that crypto trading has begun to resemble securities activity more closely, both within Japan and internationally; this highlights the need for a legal framework focused on investor protection, fuller disclosures, and stronger action against market abuse.

A key part of the proposal is stricter disclosure rules for exchange-run token sales or initial exchange offerings (IEOs). Under the FIEA framework, IEOs will require detailed crypto presale documentation covering the issuing team, the token’s economics, how funds will be used, and the project’s technical reliability.

Independent experts will conduct code reviews, and the Japan Virtual and Crypto Assets Exchange Association will carry out inspections. Input from recognized self-regulatory organizations will also weigh more heavily in listing decisions.

These rules have long applied to Japanese securities but were not previously defined for digital assets.

The report lays out explicit insider-trading bans that affect crypto market prices. Anyone with access to undisclosed, price-sensitive information about a token would be barred from trading until the information is public. The framework also covers stealth marketing and other misleading practices.

It equips regulators with stronger tools to act against unregistered service providers, including emergency injunctions and harsher penalties for offshore platforms targeting Japanese users.

As regulatory coverage grows, crypto exchanges and related services must obtain new licences under FIEA, implement stronger disclosure and risk-management systems, and maintain reserve funds appropriate to their operations.

Crypto Oversight Unfolds Alongside Broader Reforms

Japan’s move to shift digital-asset oversight into its main securities law is unfolding alongside a broader series of regulatory suggestions and plans that are set to shape its crypto policy in 2026. Throughout 2025, the FSA gradually built the pieces of this overhaul, and the new report now brings them together into a draft legislative plan.

This report will form the foundation of the amendments it plans to submit to the Diet during the 2026 ordinary session, formally requesting that lawmakers revise the Financial Instruments and Exchange Act to cover core crypto assets. A core part of this draft is the FSA’s plan to have 105 crypto assets classified as financial products, including Bitcoin (BTC) and Ethereum (ETH).

This designation carries major legal implications, representing a clear change from their previous treatment under payment-focused rules. By moving these digital assets under the FIEA, the law that regulates stocks and bonds, Japan will apply stronger regulatory standards, reflecting crypto’s growing role as an investment vehicle rather than a simple payment tool.

The draft also sets the stage for possible tax changes. Though taxation is controlled by separate legislation, the shift gives the FSA legal and political grounds to argue that these assets should be taxed like other financial products.

This paves the way for the agency’s plans to introduce a flat 20% capital gains tax on the 105 approved crypto assets. This would replace the current system, which treats crypto profits as miscellaneous income and can push rates above 50%. This proposed change will significantly affect how individuals treat their earnings when they buy and sell crypto.

This regulatory evolution also dovetails with reports that the FSA is considering allowing bank groups to register as cryptocurrency exchange operators. This would let them offer crypto trading alongside traditional services, making the crypto onramp process easy for customers.

Strengthening this is the regulator’s plan to also explore limited ways for commercial banks to hold and trade digital assets, showing a careful but noticeable expansion of institutional participation. While the FSA noted that additional measures to support market and financial stability in view of this plan are also under review.

With crypto now falling under FIEA, these future rules are positioned to be covered by the securities law, extending the strong oversight mechanisms it provides. This approach allows Japan to keep strict supervision of crypto markets while letting them mature alongside established traditional financial products.

All these reflect Japan’s show of integrating crypto into its existing financial system while preserving its unique digital characteristics. The moves do not seem to be an attempt to treat digital assets as traditional securities. Instead, it uses existing legal structures to define how crypto fits within Japan’s regulatory framework, ensuring the activities around it fall under clearer oversight while ensuring investor protections are in place.

Reflecting this balance, on December 9, the Financial Services Agency updated its public Q&A to say that offering domestic CFDs or derivatives linked to overseas crypto ETFs is “not ideal.” The regulator said these products carry higher risks because they rely on foreign structures that may not meet Japan’s disclosure and transparency rules.

At the same time, the FSA is planning legislation that would require crypto exchanges to maintain liability reserves for losses from hacks, operational failures, or unauthorized withdrawals. When implemented, this system would match the reserve and capital requirements that traditional securities firms already follow under FIEA, effectively putting exchanges under the same prudential standards as established financial intermediaries.

Conclusion

Taken together, the shift to FIEA oversight, the limits on overseas-linked derivatives, the new reserve requirements, and the stronger disclosure rules point to a wider regulatory transition in Japan’s financial system.

Both crypto firms and traditional institutions are being brought under a more consistent framework in which transparency and accountability apply to digital assets in the same way they do to conventional financial products.