Japan’s FSA Proposes Strict New Crypto Shift to Financial Act

The Japanese Financial Services Agency (FSA) has officially disclosed a legislative framework intended to transition the regulation of cryptocurrencies from the Payment Services Act to the more stringent Financial Instruments and Exchange Act (FIEA). Announced by Shigeru Shimizu, Director of the Risk Analysis Planning Office, during the 9th BCCC Collaborative Day, this bill was submitted to the extraordinary Diet session. The move signals a major shift in how Japan classifies digital assets, moving them from simple payment methods to regulated financial instruments to ensure higher levels of investor protection and market stability.

Strengthening Regulatory Oversight and Disclosure

The proposed legislative changes introduce a comprehensive set of requirements for entities operating within the Japanese digital asset ecosystem. By moving under the umbrella of the Financial Instruments and Exchange Act, cryptocurrency issuers and exchanges will be subject to rigorous information disclosure standards. This includes mandate-based transparency regarding the issuer's financial health and operational existence.

This shift reflects a global trend where regulators are seeking to harmonize crypto-asset oversight with traditional securities laws.

Specific measures outlined in the bill include:

• The establishment of a new legal category defined as "crypto-asset trading business".
• Enhanced supervisory powers for the FSA to monitor the daily operations of service providers.
• Implementation of standardized reporting protocols to mitigate risks associated with market volatility.
• Stricter compliance requirements for platforms handling Bitcoin (BTC), Ethereum (ETH), and other major digital currencies.

Enhanced Protections Against Market Malpractice

A primary driver for this legislative transition is the reinforcement of safeguards against illicit activities. Shigeru Shimizu emphasized that the new framework aims to bolster measures against unfair trading practices and unauthorized access. By applying the FIEA framework, the FSA gains the authority to enforce penalties similar to those found in traditional stock markets. This includes addressing issues such as insider trading and market manipulation, which were previously more difficult to prosecute under the broader Payment Services Act.

The FSA has submitted a bill to the extraordinary Diet session to transfer virtual currencies to the regulatory framework of the Financial Instruments and Exchange Act to strengthen user protection.

This transition marks a pivotal moment for Japan’s blockchain industry, as it moves toward a more institutionalized environment. While the new regulations impose a higher compliance burden on operators, they are expected to foster a safer environment for institutional investors who require clear legal structures before entering the market. The FSA’s proactive stance confirms Japan's position as a lead regulator in the global digital economy, prioritizing risk management and the integrity of the financial system.