Japan’s financial regulators are planning a significant overhaul of digital asset oversight, aiming to move cryptocurrency from its current classification under payments law to a more stringent framework for securities and investments. The country’s Financial Services Agency (FSA) detailed the proposed changes in a comprehensive report, signaling a shift toward treating crypto as a financial product to enhance user protection.

The plan involves moving the legal basis for crypto regulation from the Payment Services Act (PSA) to the Financial Instruments and Exchange Act (FIEA), the primary law governing securities markets. The FSA report noted that since crypto assets are increasingly used for investment, the regulatory environment must adapt accordingly.

Stricter Rules for Token Sales

A central part of the new framework focuses on strengthening disclosure requirements for Initial Exchange Offerings (IEOs), which are token sales managed by cryptocurrency exchanges. The proposal mandates that exchanges provide detailed pre-sale information, including clear data on the core entities behind an offering.

Under the new rules, token issuers would be required to disclose their identities, even if the project is decentralized. The plan also calls for mandatory code audits by independent third-party experts and encourages exchanges to consider feedback from self-regulatory organizations before listing new assets.

Expanded Enforcement and Market Integrity

The proposed framework would also grant regulators more powerful tools to crack down on unregistered trading platforms, targeting those operating from overseas and those connected to decentralized exchanges. In a move that aligns Japan with other major regulatory efforts, the proposal includes an explicit ban on insider trading, echoing provisions in the European Union’s Markets in Crypto-Assets (MiCA) framework and recent South Korean regulations.

This regulatory push comes as the Japanese government considers other changes to its crypto policies, including a potential flat tax rate of 20% on all crypto trading profits. Meanwhile, the FSA has also signaled a cautious stance on permitting derivatives for foreign crypto exchange-traded funds, describing the underlying assets as “not desirable.”