Japan restructures crypto rules under securities law in major regulatory change

Japan's Shift in Crypto Regulation

Japan’s Financial Services Agency (FSA) has proposed a significant shift in the regulation of cryptocurrencies, moving them from the Payment Services Act (PSA) to the Financial Instruments and Exchange Act (FIEA). This change aims to enhance disclosures, regulate Initial Exchange Offerings (IEOs), and target unregistered platforms. The FSA report highlights that crypto assets are increasingly being used as investment targets both domestically and internationally.

The regulatory body views this change as a way to protect users by treating crypto as a financial product. This approach aligns Japan with European and South Korean oversight frameworks. Historically, Japanese authorities have primarily seen cryptocurrencies as a means for sending and storing value, placing them under the PSA, which aligns digital assets with electronic money services.

However, the new report suggests that crypto should operate more like an investment product than a medium of exchange. A key aspect of the proposed framework involves how exchanges manage token launches. For IEOs, Japan seeks standardized disclosures requiring companies to provide specific information about their teams, explain supply structures, and present third-party code audits.

In essence, when crypto companies want to sell tokens, they must follow the rules for public-market listings instead of using lightweight token sales. The report states, “Crypto transactions conducted by users are similar to securities transactions, and may involve the sale of new crypto assets or the buying and selling already in circulation.”

Strengthening Oversight and Accountability

Japan also wants the ability to shut down unlicensed platforms more easily, including overseas exchanges and decentralized operators serving Japanese users without authorization. Rules about insider trading in crypto markets will be introduced, making Japan similar to Europe and South Korea in terms of oversight.

Additionally, the change makes developers responsible for their projects, removing one of the key selling points many autonomous projects use for privacy. This applies regardless of whether the project is decentralized. This move follows the Japanese government’s consideration of plans to reduce the maximum tax rate on crypto profits by imposing a flat rate of 20% on all gains from crypto trading.

According to reports, the proposal places crypto profits under a different taxation framework, where specific income-generating streams are treated independently from business earnings or wages.

Restrictions on Derivatives and ETFs

Japan’s Financial Services Agency sent a message to the market, stating that offering derivatives tied to overseas crypto ETFs is “not desirable.” This update came through a revised regulatory Q&A released this week. The agency cited the lack of approval for spot crypto ETFs in Japan, arguing that the investor protection framework remains incomplete.

As a result, regulators do not want foreign ETF-linked products entering the local market through side doors. This decision directly affects contracts for difference (CFDs), which enable traders to bet on price movements without owning the underlying asset. In this case, the underlying assets were US-listed Bitcoin ETFs, such as BlackRock’s IBIT. Once the guidance was made public, IG Securities announced it would stop offering these ETF-linked crypto CFDs in Japan.

According to the agency, even if the ETF is listed overseas, its price still tracks the spot price of crypto. That makes any linked CFD, in practice, a crypto derivative. Under Japan’s Financial Instruments and Exchange Act, this puts these products in a high-risk category. The regulator also flagged weak risk disclosure.

Risks and Concerns

Lawmakers still view crypto price swings as a threat to retail investors. They worry about leverage, fast liquidations, and sudden losses. CFDs amplify all three with global ETF exposure on top; the risks grow even faster. On the other hand, the US market races ahead with spot Bitcoin ETFs.