Japan’s Financial Services Agency (FSA) on January 10 released a comprehensive report from the Financial System Council’s working group, outlining sweeping changes to the country’s cryptocurrency regulatory framework.
Japan plans to move crypto regulation from payments law to securities rules, tightening IEO disclosures, requiring code audits, and mandating issuer transparency.
Fiat-backed stablecoins are expected to remain under payments law.https://t.co/9smmHdwUmG
— Canadian Web3 Council (@web3canada) December 10, 2025
The report, finalized with no major revisions to the November draft, summarizes discussions held across six meetings between June and December 2025 by the “Working Group on the Crypto-Asset System,” which was established in April.
From Payment Method to Financial Instrument: A Landmark Policy Change
Japan originally classified cryptocurrencies as a form of “payment method” under the Payment Services Act in 2016.
However, the new report signals a major shift: cryptocurrencies will be redefined as “financial instruments” under the Financial Instruments and Exchange Act (FIEA) to reflect changes in the global market environment and rising regulatory concerns.
This reclassification marks Japan’s most significant crypto policy overhaul in nearly a decade.
Why Japan Is Tightening Crypto Rules
Several factors prompted the regulatory rethink:
Post-IEO Price Declines and Investor Protection Concerns
Japan has seen multiple Initial Exchange Offering (IEO) tokens drop sharply in price after listing, prompting concerns over the adequacy of exchange-led due diligence.
Global Regulatory Pressure
Recommendations from the Financial Stability Board (FSB) have pushed nations to adopt stronger, more uniform crypto oversight.
Surge in Crypto Scams
The FSA noted a rapid increase in fraud schemes that exploit crypto’s characteristics. These schemes have become more sophisticated, driving the need for stronger consumer-protection measures.
Lending Service Risks
Crypto lending was flagged during the working group’s fifth session, with emphasis on credit risk management and protection against potential losses.
The report proposes mandatory reserve funds to cover losses from hacking or unauthorized withdrawals.
At the same time, regulators emphasized the need to avoid excessive restrictions that could hinder innovation, calling for balanced coordination between regulatory law and self-regulatory bodies.
Key New Rules: IEO Limits, Mandatory Disclosures, Code Audits
The FSA plans to implement a set of new rules targeting token issuance, exchange activity, and market fairness:
Purchase limits for IEOs
Mandatory white-paper disclosures by issuers and exchanges
Annual issuer reporting requirements
Third-party smart-contract code audits
Explicit prohibition of insider trading based on non-public information
These measures aim to strengthen transparency, reduce asymmetry of information, and curb market manipulation.
Crypto Lending and Staking to Fall Under FIEA Oversight
Crypto lending services will be regulated similarly to existing financial intermediary businesses, bringing them under the FIEA’s licensing and operational requirements.
The report suggests that staking and other yield-generating services may also fall under future regulatory review.
Harsher Penalties: Up to 5 Years in Prison
Punishments for non-compliance will be significantly tightened, including:
Up to 5 years in prison
Or fines up to USD 32,000
Or both, for operating without proper registration
Additional measures include emergency business suspension orders and applying Japan’s securities salesperson regulations to crypto service providers.
The FSA plans to submit related legal amendments to the Diet as soon as possible.
The report will now be presented to the full Financial System Council and the Financial Subcommittee, with deliberations expected during the next ordinary Diet session.
