Japan’s FSA panel urges shifting crypto rules to securities law

Japan’s crypto rulebook could be headed for a major rewrite. A report summary from the Financial System Council’s Working Group on Crypto-asset Systems—published by Japan’s Financial Services Agency (FSA)—calls for treating crypto-assets as financial instruments and moving the legal basis for regulation from the Payment Services Act (PSA) to the Financial Instruments and Exchange Act (FIEA).

The stated aim is user protection and market integrity as crypto “is increasingly being recognized as investment targets,” while explicitly warning that tighter rules “should not be interpreted as an endorsement” of crypto investing.

The big proposal: move crypto from PSA to the FIEA

The working group’s headline recommendation is a change in legal foundation: crypto-asset regulation should shift from the PSA to the FIEA, with crypto-assets classified under the FIEA as financial instruments distinct from securities.

The document also notes that NFTs and stablecoins that are not classified as crypto-assets under the current PSA would remain outside the definition of crypto-assets under the amended FIEA.

Disclosure, white papers, and who must tell users what

A core theme is information asymmetry—especially between retail users and technical experts. The summary flags concerns over unclear descriptions in white papers and even discrepancies between described code and actual code, framing this as a user-protection gap the rules should address.

In the proposed framework, crypto-asset issuers and crypto-asset exchange service providers (CASPs) would be expected to provide clearer information to users.

Exchanges, custody, and tougher controls on “unregistered” activity

On the business side, the report says CASPs should face regulations comparable to Type I Financial Instruments Business, and it calls for stronger safeguards around users’ crypto—especially via improved cybersecurity management, including supply-chain risk.

It also argues for a tougher stance on illegal solicitation and unregistered operators, including increasing penalties and adding tools like emergency court injunctions (with the Securities and Exchange Surveillance Commission, SESC, involved in petitioning).

One notable proposal aimed at fraud prevention: establishing a “deliberation period” where new users would be prohibited from transferring crypto-assets to unhosted wallets (wallets not managed by registered CASPs) after opening an account.

Market abuse: insider trading rules for crypto

The summary says Japan should establish insider trading regulations involving crypto-assets, citing international trends and the need to ensure fairness in transactions.

It also proposes expanding enforcement tooling—creating criminal investigative authority and an administrative monetary penalty framework under the SESC, alongside stronger trade monitoring by CASPs and broader market surveillance by self-regulatory bodies and the SESC.

Why it matters for crypto

• Japan may be moving crypto closer to securities-style oversight. Shifting from the PSA to the FIEA would be a major reclassification moment for how crypto services are supervised.
• Disclosure and code/white-paper accuracy could become regulated expectations. That raises the bar for listings and issuer communications—especially for retail-facing products.
• Market integrity rules could tighten fast. Insider trading standards and monetary penalties would reshape how exchanges monitor trading and how enforcement escalates.
• User-flow restrictions could affect self-custody habits. The proposed “deliberation period” for unhosted wallet transfers is directly aimed at reducing fraud pathways, but it could add friction for legitimate users too.

What to watch next

• Whether the FSA advances these recommendations into concrete legislative proposals under the FIEA framework.
• Specific design of insider trading rules (scope, “material facts,” who counts as an insider) and how they apply to DEX/P2P activity, which the summary explicitly contemplates in scope discussions.
• How strict “unhosted wallet” measures become if implemented, and whether exceptions or thresholds are introduced.
• Operational requirements for CASPs (cybersecurity, liability reserves, monitoring) and the timeline for compliance if the regime shifts.

Source: Japan’s FSA Report