In Japan, the current regulatory framework for cryptoassets is based on their function as a means of payment, and is primarily governed by the Payment Services Act. However, in recent years, developments such as the listing of spot Bitcoin ETFs in several foreign countries have accelerated the treatment of cryptoassets as investment assets both in Japan and abroad. At the same time, there has been a rise in fraudulent investment solicitations, creating a growing need to strengthen user protection measures.
On April 10, 2025, the Financial Services Agency (the "FSA") published a Discussion Paper entitled "Examination of the Institutional Framework for Cryptoassets and Related Matters¹" (hereinafter referred to as the "DP") to create an environment that balances user protection with the promotion of innovation.
This article provides an overview of the regulatory approaches to cryptoasset reform outlined in the DP. Please note that the content and ideas presented in the DP may not necessarily be reflected in future legal amendments.

¹ https://www.fsa.go.jp/news/r6/sonota/20250410_2/01.pdf (In Japanese)

1. Fundamental Concepts for Regulatory Review

The DP identifies several challenges concerning cryptoasset investments, which are categorized as follows:

• Enhancing the disclosure and provision of information
• Protecting users and addressing unregistered operators
• Addressing misconduct in investment management and related activities
• Ensuring fairness in price formation and trading activities

Given the similarity of these challenges to those traditionally addressed under the Financial Instruments and Exchange Act (the "FIEA"), the utilization of mechanisms under the FIEA is being considered.
However, the DP examines the matter on the premise that cryptoassets have characteristics distinct from traditional securities such as shares. Accordingly, if cryptoassets are regulated under the FIEA, they would be classified as financial instruments in a different manner from securities. Additionally, Non-Fungible Tokens ("NFTs") and stablecoins (electronic payment instruments) are currently considered unlikely to require regulatory revision and have therefore been excluded from the scope of examination in the DP.

2. Classification of Cryptoassets

The DP categorizes cryptoassets into the following two types, while acknowledging the possibility of transitions between categories due to design modifications, etc.:

Type I. Fundraising/Business Activity Type ("Type I Cryptoassets")

These are cryptoassets issued as a means of fundraising, with the raised capital utilized for projects or other business activities.
These tokens are typically issued through Initial Exchange Offerings (IEOs) for the purpose of funding specific projects, and the issuer is clearly identifiable.
Because Type I Cryptoassets are intended to be used as a means of raising funds for business activities, obligations on issuers to disclose and provide information are under consideration.

Type II. Non-Fundraising/Non-Business Activity Type ("Type II Cryptoassets")

These are cryptoassets that do not fall under Type 1, such as Bitcoin, Ethreum, and meme coins.
For Type II Cryptoassets, regulations aimed at preventing harm caused by fraudulent solicitations are being considered.

3. Information Disclosure and Provision Regulations

Under the current regulatory framework, cryptoasset issuers are not subject to any direct disclosure or information provision obligations unless they sell the cryptoasset themselves. Instead, under the self-regulatory rules established by the Japan Virtual and Cryptoassets Exchange Association (the "JVCEA")², only indirect obligations are imposed on Crypto-Asset Exchange Service Providers ("CAESPs") who intend to newly list a cryptoasset.
In contrast, for securities under the FIEA, issuers are required to disclose information. For Type I Cryptoassets, including for overseas issuances, the DP considers imposing disclosure and information provision obligations on issuers to provide investors with essential information for investment decisions, such as rules, algorithm summaries, information about stakeholders, and project details.
However, the DP envisions applying such regulations only to cryptoassets issued through public offerings, in which solicitation is conducted to a large number of general investors, and the tokens are likely to be widely circulated.
For Type II Cryptoassets, where issuers are often indeterminate, imposing obligations on CAESPs which handle such Type II Cryptoassets to explain and provide specified information to investors is being considered.
On the other hand, transactions conducted through Decentralized Exchanges (DEXs) using non-custodial wallets are excluded from the scope of disclosure and provision regulations under the current examination.

² Article 6 of the JVCEA "Rules on Handling Cryptoassets"

4. Operational Regulations

The operational regulations for CAESPs under the current framework, including self-regulatory rules by the JVCEA, are generally aligned with those for Financial Instruments Business Operators under the FIEA. Nonetheless, the DP explores the following new considerations:

• Elevating regulations currently set at the self-regulatory level to statutory regulations.
• Introducing a more effective and stringent regulatory framework to curb illegal solicitations by unregistered operators.
• Expanding the scope of regulations to include investment management and advisory activities involving cryptoassets in spot markets.

5. Market Establishment Regulations

Under the FIEA, strict market establishment regulations apply when a trading platform provides a collective marketplace involving multiple counterparties, in order to ensure proper price formation as well as fairness, and neutrality in operations.
The DP suggests that for order matching among users in spot cryptoasset trading (order book trading), while proper transaction management and system development are necessary, the need for stringent market establishment regulations is relatively low due to the following reasons:

• The price formation function of individual exchanges is currently limited.
• For cryptoassets traded on multiple platforms, users can still access trading venues even if a particular CAESP goes bankrupt.
• Even for cryptoassets not traded on other exchanges, they can still be traded without going through a CAESP.

The same reasoning may apply to derivative trading (margin trading) involving cryptoassets, but ongoing observation is required.

6. Insider Trading Regulations

Under the current regulatory framework, there are no explicit provisions that directly regulate insider trading related to cryptoassets. In this regard, the DP considers the following three approaches:

Option A: Formal Provisions

Introduce specific provisions similar to insider trading regulations for listed securities under FIEA Article 166, aiming to specifically categorize and define types of prohibited conduct.

Option B: Abstract Provisions

Regulate transactions based on the "use" of material facts that could significantly influence investment decisions.

Option C: General Provisions

Leverage general prohibitions against fraudulent acts under FIEA Article 185-22 to target particularly malicious insider trading that constitutes "wrongful means, schemes, or techniques".

The DP does not indicate which of the proposed approaches is most appropriate. However, regardless of the chosen approach, the specific requirements and definitions must be clearly defined. To ensure the effectiveness of insider trading regulations, close coordination between CAESPs, self-regulatory organizations, and government authorities for market surveillance is deemed essential.

7. Conclusion

The DP reviews cryptoasset regulations with reference to the framework applied to securities under the FIEA, in light of their increasing use as investment assets in recent years. However, given the unique characteristics of cryptoassets when compared with securities, careful and thorough discussions are required to determine the appropriate regulatory approach by considering each feature one by one.