Bidding farewell to the funds settlement law, Japan has established crypto assets as financial investment products.
Japan's financial regulatory system is迎來歷史性的轉折點. The Financial Services Agency (FSA) under Japan announced the 'Working Group Report on the Crypto Asset System' on December 10, 2025, clearly revealing the future regulatory blueprint: the regulatory legal source for crypto assets will fully transition from the current (Funds Settlement Act) to the (Financial Instruments and Exchange Act) (FIEA, abbreviated as 金商法).
The core logic of this significant reform lies in the recognition by regulatory authorities that the properties of crypto assets have evolved from being merely a means of payment to a broad investment target. According to report data, as of October 2025, the total number of accounts at domestic crypto asset exchanges in Japan has exceeded 13 million, with user-held asset balances surpassing 5 trillion yen.
The investigation further indicates that up to 86.6% of users' trading motives are for 'long-term price appreciation', clearly showing that cryptocurrency assets are viewed as investment products in reality. However, the original intention of regulating payment and anti-money laundering (the Fund Settlement Act) lacks the necessary regulatory tools for investment products, such as information disclosure obligations, insider trading bans, and suitability principles.
Therefore, bringing cryptocurrency assets under the jurisdiction of the Financial Instruments and Exchange Act aims to fundamentally strengthen investor protection through stricter securities-level regulations. Notably, although the regulatory framework is shifting, the Financial Instruments and Exchange Act will define cryptocurrency assets as 'new financial products' that differ from traditional stocks and bonds, while NFTs primarily used for gaming or art and stablecoins resembling digital currency will not fall under this regulatory shift and will maintain existing regulations.
IEO rules are significantly tightened, establishing lock-up periods and investment caps to prevent exploitation.
With the upgrade of the regulatory framework, the rules for exchanges issuing tokens (IEOs) will also face strict review standards to prevent project parties from colluding with exchanges to harm investor interests. The new system considers the information disclosure system as core to protecting investors, stipulating that during the new issuance or sale of tokens:
If there is a centralized manager, the issuer must bear the obligation of information disclosure.
If it is a decentralized project, the exchange will act on its behalf.
Information that must be disclosed includes the technical details of cryptocurrency assets, potential risks, detailed business plans, the backgrounds of managers, and the specific use of funds. In addition, to ensure the security of tokens, new regulations will mandate that project parties hire third-party experts to conduct code audits, and the qualifications and systems of auditors will also be subject to legal regulations.
To address the issue of retail investors potentially suffering significant losses in IEOs, the report references the system of equity crowdfunding, proposing to set investment limits for individual investors in IEOs, especially for projects that have not undergone financial audits by accounting firms.
More critically, to eliminate the practice of issuers immediately selling off profits after token listings, new regulations will introduce a 'lock-up period'. Issuers and their related parties will be prohibited from selling their held cryptocurrency assets for a specific period before and after the token listing. This aims to prevent insiders from manipulating the market using asymmetric information and to ensure fairness in market price formation. At the same time, regulatory authorities emphasize that even if a certain cryptocurrency asset is suspended from trading (delisted) by the exchange, from the perspective of protecting users' asset rights, users must be guaranteed the right to transfer their assets to personal wallets.
Exchange regulation aligns with securities firms, mandating reserves and severe penalties for unlicensed operators.
Under the new Financial Instruments and Exchange Act framework, cryptocurrency exchanges (trading operators) will face strict regulations equivalent to those applied to 'Type 1 Financial Instruments Business', such as securities companies. First, the obligation of the 'suitability principle' will be mandatory, meaning exchanges cannot promote high-risk products to customers with low risk tolerance or mismatched investment objectives.
The report specifically points out that some operators profit by guiding customers to use high-fee 'Sales Office' models. In the future, based on the 'best execution obligation', operators will be required to re-examine their service models to ensure the maximization of customer interests.
In terms of asset security, regulatory requirements are significantly increased. Current laws only require exchanges to ensure that assets managed in hot wallets are secured for repayment of the principal, but this requirement will expand to cold wallets in the future. Exchanges must set aside reserves or obtain insurance for assets in cold wallets to address potential hacker attacks or operational errors.
In addition, cybersecurity responsibilities will extend to the entire supply chain, including third-party vendors providing wallet systems for exchanges, who will also fall under regulatory oversight, bearing the obligation to report to administrative agencies and manage security. The Japanese government has shown a hardline attitude towards unlicensed operators who ignore regulations, proposing to increase the criminal penalty for unlicensed operations from the current 'less than 3 years imprisonment' to 'less than 5 years imprisonment', and granting the Securities Trading Surveillance Commission the power to apply for emergency injunctions in court to quickly halt illegal operations.
Further reading
Unlicensed exchanges can no longer be high-profile? The Financial Supervisory Commission: If the cryptocurrency special law is passed, unauthorized solicitation will be illegal.
Introducing an insider trading ban and tax reform paves the way for institutions to enter the market.
To build a mature financial market, combating unfair trading is a crucial aspect.
This reform will officially bring cryptocurrency assets under insider trading regulations. The regulatory targets cover all cryptocurrency assets handled by domestic exchanges, and the scope of enforcement is not limited to domestic transactions but also includes overseas exchanges and trades on decentralized exchanges (DEX).
Any personnel who can access 'material facts', including senior executives of the issuer, exchange employees, contracted partners, and government officials with statutory authority, will be classified as potential insider traders. Even those who directly obtain information from the aforementioned personnel, known as 'first-hand intelligence recipients', will also be subject to regulations. The Securities Surveillance Commission will gain the authority to conduct criminal investigations and impose fines, confiscating improper benefits from violators.
While strengthening regulation, the Japanese government is also considering relaxing tax policies and easing institutional restrictions to enhance market competitiveness. Currently, the Japanese government is contemplating changing the tax rate on profits from cryptocurrency asset trading from a maximum miscellaneous income tax rate of 55% to a separate tax rate of 20% similar to that of stocks, which is seen as a significant benefit to attract more retail and institutional investors.
Regarding institutional investors, regulatory directions are proposed to allow subsidiaries of banks and insurance companies to engage in the buying, selling, brokerage, and investment of cryptocurrency assets, but due to depositor protection, banks remain cautious about direct involvement.
For DEX, which is difficult to regulate directly, the report recommends imposing disclosure obligations and KYC responsibilities on wallet providers or UI interface operators. This comprehensive reform series, from legal systems, taxation to institutional access, while increasing compliance costs for operators in the short term, will ultimately help Japan establish its international position as a compliant safe haven for cryptocurrency assets.
'Japan's regulatory upgrade! Cryptocurrency assets will be included in the Securities Act, IEOs, and exchanges will face stricter reviews' This article was first published in 'Crypto City'.
