What's Next for Japan's Cryptocurrency Regulations? Summary from the Financial Services Advisory Council WG

In November 2025, the Financial Services Agency's 'Cryptocurrency System Working Group (WG)' presented a draft report that envisions a fundamental redesign of the domestic market.

The direction indicated suggests a potential phased transition of cryptocurrency exchange operators from the current framework centered around the Payment Services Act to a capital market-level discipline, i.e., a supervisory system based on the Financial Instruments and Exchange Act, representing a significant leap beyond the existing discussions on cryptocurrency regulations.

Industry Groups Propose a 'New Discipline Model' and Highlight Market Challenges

In response, three industry associations, JVCEA (Japan Virtual and Crypto assets Exchange Association), JBA (Japan Blockchain Association), and JCBA (Japan Cryptocurrency Business Association), jointly issued a statement. They committed to enhancing governance, third-party auditing of review processes, and raising the bar on unfair trade monitoring and security standards, based on the WG's draft.

Currently, the number of cryptocurrency accounts in Japan has surpassed 13 million, maintaining a substantial trading population. However, the market faces accumulating challenges on both regulatory and operational fronts, including increased price volatility risks, the spread of misinformation primarily via social media, a surge in cyber-attacks, and inconsistencies in risk disclosure and customer suitability standards among operators.

The FSA's draft report outlines a roadmap for regulatory reform focused on 'enhancing consumer protection' and 'improving market integrity,' while maintaining the scope to not stifle innovation. This reform is not merely about tightening regulations but about repositioning the cryptocurrency market as a future financial infrastructure and developing it into a sustainable ecosystem.

The industry groups' statement also clearly shifts the focus from 'past responses' to 'future required standards,' indicating that Japan's cryptocurrency market is entering a phase where it must simultaneously upgrade its systems, operations, and technology.

The discussion on cryptocurrency regulation in Japan has significantly evolved in recent years against the backdrop of international trends and the maturation of the domestic market. Especially since 2021, as market growth and regulatory strengthening have progressed globally, Japan has established a unique position praised worldwide for its early establishment of user-centric regulatory frameworks.

However, as the market size expands and diversifies, the existing frameworks are increasingly unable to address emerging challenges.

The cryptocurrency market has experienced rapid global growth, and between 2024-2025, integration with adjacent sectors such as AI, gaming, and financial infrastructure has advanced, broadening the social implementation of tokens.

Alongside this, the sophistication of cyber-attacks, insider trading, market manipulation, and the spread of high-yield scams on social media have internationally increased incidents of unfair trading and misinformation. These 'changes in the external market environment' prompted the Financial Services Agency's Working Group (WG) to re-examine the entire system.

The gap between the rapidly expanding domestic market and the system creates challenges

In Japan, the situation surrounding cryptocurrency exchange operators has drastically changed. When the Funds Settlement Act was amended in 2017, introducing a registration system for cryptocurrency exchange operators, Japan was ironically deemed to have the strictest regulations in the world.

However, subsequent multiple leakage incidents, an increase in new entrants, and a broadening investor base have caused the market reality to outpace the system's expectations at a rapid rate. Currently, as mentioned earlier, the number of domestic accounts has exceeded 13 million, creating an environment where a wide range of users, from beginners to experienced investors, engage in trading.

This market expansion has increased the issues that the system must address. These include inadequate risk explanations to inexperienced users, an increase in speculative trading beyond surplus funds, lack of uniformity in listing criteria leading to opaque listing processes, and discrepancies in user protection levels due to operational differences among operators.

The Financial Services Agency WG discussed the need for a more sophisticated governance system, including the transition to the Financial Instruments and Exchange Act, to address the 'gap between the system and the field.'

Meanwhile, the industry also felt a sense of crisis. Misunderstandings such as 'Japanese operators will withdraw with the transition to the Financial Instruments and Exchange Act' and 'excessive burden of liability reserves' spread on social media, partially overheating the system discussions.

In response, Genki Oda, representative director of JVCEA, stated, 'Liability reserves are a common mechanism required even for securities companies, and their institutionalization will actually increase industry trust.' Misinformation itself is an issue that hinders proper understanding of the system.

The Financial Services Agency's draft report aims to dispel such misunderstandings while expanding the framework for sustaining the cryptocurrency market long-term. The scope of discussions includes user protection, unfair trading surveillance, stringent review processes, and layered security standards, positioning this not merely as a legal amendment but as a comprehensive redesign aimed at strengthening overall market governance.

Given this background, the WG's draft report not only marks a milestone in system discussions but also serves as a crucial foundation for advancing Japan's cryptocurrency market into its next phase.

The joint statement from industry associations also shows a step forward from traditional responses, indicating a commitment to adopt governance standards at the level of the Financial Instruments and Exchange Act. As the market matures, competes internationally, and expands its user base, Japan is poised to construct a new cryptocurrency regulatory model.

The Financial Services Agency's Working Group (WG) has presented several key points in its draft report to significantly update Japan's cryptocurrency system. At the heart of the system overhaul are ① enhanced user protection, ② improved market integrity, ③ advanced governance and security, with rules surrounding cryptocurrency exchanges being organized to align with capital market standards.

This section summarizes the overall picture of the proposed regulatory reforms and the collective response strategy of JVCEA, JBA, and JCBA.

1. Redesigning the System in Anticipation of the Transition to the Financial Instruments and Exchange Act

A distinctive feature of this WG proposal is the clear direction to shift cryptocurrency exchanges from the 'Funds Settlement Act framework' to a 'Financial Instruments and Exchange Act-based discipline'.

The background includes cryptocurrencies (virtual currencies) beginning to exhibit characteristics similar to the securities market, not just as a means of payment but as investment objects, asset formation tools, and financial services including staking and lending.

The WG has organized the following points:

• Advanced regulation of unfair trading (collection and analysis of transaction data)
• Enhanced transparency and neutrality in the review process
• Stricter suitability for customers
• Institutionalization of a liability reserve system
• Layered cybersecurity standards

These areas could not be sufficiently regulated under the previous Funds Settlement Act regime, and the redesign responds to the market's strengthened financial market characteristics.

The proposed reforms outlined in this report merely set the direction, with no fixed dates yet for the enactment and implementation of the laws. However, both the Financial Services Agency and industry groups have emphasized the need to advance practical preparations, and the schedule for transitioning to the new system has accelerated more than ever before.

Legislative Enactment and Implementation Remain Undetermined, But 'Preparation Starts Now'

In the WG, following the draft report, the next stage involves drafting the legislation, preparing executive orders and Cabinet Office orders, revising JVCEA's self-regulatory rules, and reviewing operational systems of businesses. Normally, there is a significant period between legislative amendments and their implementation, but the distinctive feature of this cryptocurrency system reform is the need for early preparation, driven by market expansion and changing international trends.

Oda from JVCEA also clearly stated, 'It is crucial not to wait for legislative changes but to start preparing the system in advance,' and the industry has already begun taking concrete actions towards reform even before the system is finalized.

Regulatory reforms are expected to progress in phases, but there are clear points that exchanges need to prepare for early on.

1. Practical Considerations for Exchanges

● Review Process (Listing Procedures)

• Advanced submission processes for project information, predicated on the establishment of an 'External Expert Cryptocurrency Review Committee'
• Insufficient disclosure can lead to delays in review or increased risk of rejection
• Updates to risk disclosure documents, technical documents, and white papers are essential

● Customer Suitability

• Not only account opening criteria but also the design of transaction and holding limits are necessary
• Operational rules to curb high-risk transactions exceeding surplus funds
• Documentation and log management of risk explanations need strengthening

● Monitoring Unfair Trading

• Submission of trading data to JVCEA requires uniformity in data format and granularity
• Internal market monitoring flows need to be brought closer to JPX-R standards
• Enhancement of data retention periods and analytical frameworks

● Security Measures

• Operation under the assumption of 100% cold wallet usage (maintaining existing rules)
• Essential upgrades in 'self-help' measures such as multi-signature operations, intrusion detection, and log monitoring
• Review of incident response manuals and third-party audits

● Liability Reserves

• Consideration is being given to establishing new reserves for exchanges, but the draft report specifies that 'the level should not be excessively burdensome'
• Early internal calculations and revisions of capital policies are recommended
• Development of policies to address misleading information is also crucial

2. Impact on Users: Changes in Account Opening and Trading Rules

Regulatory reforms may also bring changes to the trading environment for users.

● Stricter Account Opening Reviews

• Emphasis on hearing not only identity verification but also investment experience, income, and financial status
• Possibility of introducing trading restrictions based on risk tolerance

● Trading and Holding Limits

• To prevent speculative transactions exceeding surplus funds, upper limit management may be mandated for exchanges
• Enhanced risk responses for specific users such as minors and the elderly

● Transparent Listing Reviews

• After the establishment of an external expert review committee, the criteria for new listings will be clarified and transparency will be enhanced

● Reduction in Unfair Trading

• Insider trading, market manipulation, and abnormal price movements based on fake information are likely to be detected earlier than before

To Avoid Confusion During the Transition

Since regulatory reforms will have a significant impact on the entire market, it is essential for both operators and users not to be overly swayed by 'regulatory anxiety' and to correctly understand the intent of the regulations.

Especially for operators, as review and market surveillance become more sophisticated, greater emphasis will be placed on disclosure and accountability. Revising user FAQs and risk explanation materials to appropriately convey the content and impact of regulatory changes is required.

On the other hand, it is increasingly important for users to correctly understand the content of the regulations, taking into account the characteristics and volatility of cryptocurrencies, and the risks associated with investing. As the market matures, it is recommended to utilize educational and awareness-raising efforts by organizations such as J-FLEC (Japan Financial Literacy and Education Council) to enhance information literacy.

Overall, the current regulatory reforms are expected to progress 'in phases and ahead of schedule,' and while the legislative schedule is yet to be confirmed, the content of the regulations has already started to take effect.

These efforts are laying the foundation for Japan's cryptocurrency market to advance into the 'next decade,' with simultaneous updates in regulation, operation, and technology.

The draft report by the Financial Services Agency's Working Group (WG) merely outlines the 'framework of the system' to elevate the cryptocurrency market to a more mature financial infrastructure.

From here, a multi-layered market upgrade will proceed, involving legislative amendments, self-regulation, and operational improvements by businesses. This section summarizes the perspectives shared by the Financial Services Agency, industry groups, and Oda, the representative director of JVCEA, on the future market environment.

1. Legal Framework Moves to 'Stage 2': Acceleration of Guidelines and Self-Regulation

Following the compilation of the draft report, the Financial Services Agency is expected to transition to the next steps, which include:

• Revising articles in light of the transition to the Financial Instruments and Exchange Act
• Refining enforcement orders and Cabinet Office orders
• Standardizing cryptocurrency review and listing criteria
• Establishing standards for monitoring unfair trading practices
• Developing security guidelines
• Designing a liability reserve fund system

These initiatives will not proceed in isolation but will be collaboratively advanced by the Financial Services Agency (public assistance), industry groups (mutual assistance), and exchange operators (self-help). The nature of financial legislation, which improves through use, suggests that multiple guidelines and rules will be updated progressively through 2025-2026.

2. JVCEA to Enhance Governance and Rebuild Expertise

The role of industry groups is also set to change significantly. JVCEA is expected to undertake the following 'structural reforms':

• Expanding personnel and financial resources to withstand supervision at the level of the Financial Instruments and Exchange Act
• Establishing a neutral 'Cryptocurrency Review Committee'
• Strengthening the market surveillance department and hiring specialized analysts
• Implementing AI-driven monitoring of unfair trading practices
• Deepening collaboration with JP Crypto ISAC

Particularly, the overhaul of the review system and the reconstruction of the market surveillance framework are crucial elements that will define the quality of Japan's future cryptocurrency market. It is expected that industry groups will evolve from merely nominal self-regulation to playing a substantial supervisory role.

3. Comments from Genki Oda

'From what has been achieved to what should be achieved next.' In his note, Oda comments on the regulatory reforms as follows:

• 'We need to shift our focus from what has been accomplished to what should be accomplished next.'
• 'Regulatory reforms are not about weakening the industry but are necessary to enhance the credibility of the Japanese market.'
• 'Liability reserves are common even among securities companies and should not be overly feared.'
• 'We should proceed with mature initiatives across the industry without being swayed by misinformation or excessive anxiety.'
• 'Elevating Japan's internationally recognized system to the next stage.'

He views regulatory reforms not as a burden but as a necessary foundation for enhancing trust and continuing the industry's growth.

4. Future-Oriented Operational Reforms Required from Exchange Operators

Regulatory amendments not only tighten standards but also encourage the evolution of operators themselves. The following four points will likely be required of operators by the fiscal year 2026:

• Transparency in operational processes such as listing reviews, risk explanations, and customer management
• Standardization of documents and workflows

● Continuous Security Upgrades

• Addressing national-level attacks
• Strengthening multi-signature, HSM, and SOC frameworks

● Enhanced Market Surveillance through Data Utilization

• Advancements in detecting fraudulent trading patterns using AI and machine learning models
• Standardization of data submission obligations and analytical frameworks

● Increasing Importance of Reputation Management

As regulations become stricter, the transparency of operators will be crucial to their evaluation. As the industry matures, being recognized as a 'trustworthy operator' will become key to acquiring users.

5. The Future for Users: Towards a 'Safer and More Transparent Market'

Regulatory reforms will also benefit users' trading environments.

• Transparent listing reviews will advance the filtering of high-risk assets
• Early detection of unfair trading practices will make it easier to avoid abnormal price spikes and drops
• Enhanced customer suitability will advance protection from unplanned trading
• Raised security standards will reduce the risk of breaches

Although Japan has been known as 'the world's strictest in cryptocurrency regulation,' the current reforms are not merely about tightening but about upgrading towards a market with 'unmatched safety and transparency' globally.

This regulatory reform is significant not only in addressing domestic market issues but also in enhancing the international competitiveness of Japan's cryptocurrency ecosystem.

Japan introduced a clear legal framework for cryptocurrencies in 2017, the first in the world, and has since advanced regulations focused on security, such as mandating cold wallet management following incidents of unauthorized outflows.

These developments have established Japan's market as one of high safety internationally. Meanwhile, policies supporting Web3.0 and revisions in tax laws are progressing, along with an increase in token economy implementations, creating a new environment both in regulatory and practical aspects. As regulatory frameworks intensify globally, Japan's system is increasingly seen as a leading model, thanks to these past accumulations.

The Financial Services Agency's WG draft report outlines guidelines that could once again elevate Japan as the most well-regulated cryptocurrency market, highlighting governance, security, listing reviews, fraud monitoring, and customer protection as essential for maintaining high levels of transparency and safety internationally. These foundations must be in place for Japan's cryptocurrency market to sustain growth and pioneer new investment and industrial domains.

Regulatory reform is not an endpoint but rather a starting line. As the market matures, competition intensifies, and user demographics expand, the roles of the Financial Services Agency, industry groups, exchange operators, and users themselves are crucial in forming a healthy ecosystem.

By navigating this phase where system, operation, and technology layers are updated simultaneously, Japan's cryptocurrency market is set to move towards 'The Next Decade'.

Reference Information & Links

• Financial Services Agency: WG Materials (PDF)
• note: Genki Oda's 'About the 6th Financial Council WG Summary'
• CoinPost Q&A Article

This article is reconstructed based on the 'Cryptocurrency System Working Group Draft Report' published by the Financial Services Agency, official announcements by industry groups, and public comments by JVCEA Chairman Genki Oda (note article). For a comprehensive understanding of the regulatory reform, refer to the above materials and links.