1. Market Expansion and Regulatory Strengthening
While the legal reforms will increase the compliance costs for operators, they will also integrate crypto assets into Japan's capital market regulations, achieving equal footing with other countries. Market expansion is expected, with the entry of institutional investors and the potential approval of crypto asset ETFs.
2. Insider Trading Regulations and Information Management
New insider trading regulations will apply to unique events such as new crypto listings and hacking incidents, treating them as material facts. This will require issuers and trading operators to establish stringent information management systems, as is standard in traditional finance.
3. Early Preparation and Response for Implementation
The legal reforms may take effect around July 2027 following the establishment of subordinate regulations. Operators requiring new licenses will face restrictions on business expansion during the grace period, making early preparation and participation in discussions on self-regulation rules essential from the beginning of the year.
── How do you perceive the impact of these legal reforms on the crypto asset business environment in Japan?
Masafumi Masuda (hereafter, Masuda): I see both market expansion and regulatory strengthening as outcomes.
On the regulatory strengthening side, compliance costs will inevitably rise, increasing market exit pressure on operators lacking financial resources or compliance frameworks. This could accelerate M&A activities aimed at acquiring existing exchange licenses, including those by foreign entities.
Conversely, on the market expansion side, crypto assets will be fully integrated into Japan's capital market regulations, aligning with international standards. This equal footing with other countries is expected to globalize businesses that were previously confined domestically. If crypto assets are clearly positioned as investment targets and concurrent tax reforms are realized, a diverse range of investors, including institutional ones, are anticipated to enter the market.
Moreover, the groundwork for the approval of crypto asset ETFs is significant. This will create additional investment options beyond spot and derivative trading. Discussions on handling foreign crypto asset ETFs domestically are also expected to progress.
For operators, while there are negative aspects such as increased regulatory costs, there are also opportunities for significant expansion in crypto asset-related businesses. As long as regulations are risk-based and fair, they are not necessarily excessive, and operators should comply with the appropriate rules while actively investing in the expanding market.
── While the legal reforms open new avenues, are there any major unresolved issues that remain?
Masuda: One unresolved issue that has been discussed but lacks a clear answer is the handling of DeFi. The treatment of actions by protocol developers, operators, and UI providers in DeFi, including DEXs (decentralized exchanges), under Japanese law is still being sorted out and remains an unresolved challenge post-reform.
However, international discussions in the AML/CFT field are advancing. The FATF's July 2026 report focuses on whether there are individuals who effectively control or have significant influence over a protocol, regardless of whether it is formally called DeFi, and suggests applying VASP regulations if such individuals exist, which is noteworthy for future regulatory trends.
Another issue is the area of non-custodial wallets. Unlike securities, the appeal of crypto assets lies in their ease of personal ownership and transfer, but the appropriateness of regulating non-custodial wallets, which can be handled without specific business involvement, is still being sorted out.
The FATF report also indicates that, in relation to DeFi, rather than uniformly regulating technology or software itself, regulations should focus on who provides or facilitates financial services through UIs, etc., and does not present a uniform view on non-custodial wallets.
However, for current crypto asset exchange operators (crypto asset trading operators post-reform), certain regulations, such as a notification system, will apply to "crypto asset management-related businesses" that provide necessary systems for B2B crypto asset management under the legal reforms.
── The Financial Services Agency and the National Police Agency jointly requested the JVCEA (Japan Virtual and Crypto assets Exchange Association) to strengthen withdrawal restrictions from exchanges, which has become a topic of discussion. Do you foresee any movements towards legalizing this?
Masuda: Based on the aforementioned FATF report, international discussions on AML/CFT measures for on-chain transactions, including DeFi and unhosted wallets, are progressing. However, the FATF does not call for a blanket ban on withdrawals to non-custodial wallets. Instead, it suggests reducing risks through entities capable of effective regulation, such as crypto asset trading operators and stablecoin issuers, when there is no direct regulatory body for DeFi.
In Japan, as you mentioned, there are discussions on certain withdrawal restrictions and waiting periods. However, how these will be specifically implemented will require confirmation of forthcoming subordinate regulations.
