Japan moves to shift crypto oversight to securities law in major regulatory overhaul

Japan’s Financial Services Agency (FSA) has proposed shifting crypto regulation from the Payment Services Act (PSA) to the Financial Instruments and Exchange Act (FIEA) to strengthen disclosures, regulate IEOs, and target unregistered platforms. 

According to the report released by FSA, “Crypto assets are increasingly being used as investment targets both domestically and internationally.” The regulatory body cited this change as a means to protect users by providing regulation that treats crypto as a financial product.

Japan joins Europe and South Korea in terms of oversight

To date, Japanese authorities have primarily viewed cryptocurrencies as a means for sending and storing value. That approach placed them under the Payment Services Act, aligning digital assets with electronic money services. 

However, the new report from the FSA says that crypto should operate far more like an investment product than a medium of exchange.

A significant aspect of the proposed framework is how exchanges manage token launches. For initial exchange offerings, Japan seeks standardized disclosures that require companies to provide specific information about the teams behind them, explain their supply structures, and present third-party code audits.

In short, when crypto companies want to sell tokens, they must follow the rules for public-market listings instead of using lightweight token sales. “Crypto transactions conducted by users are similar to securities transactions, and may involve the sale of new crypto assets or the buying and selling already in circulation,” the report reads.

Japan also wants to be able to shut down unlicensed platforms more easily, including overseas exchanges and decentralized operators that serve Japanese users without authorization. There will also be rules about insider trading in crypto markets, which would make Japan similar to Europe and South Korea in terms of oversight.

Additionally, the change makes the developers who created the project responsible, which takes away one of the key selling points that many autonomous projects use for their privacy. This is regardless of whether the project is decentralized.

This move follows the Japanese government’s consideration of plans to reduce the maximum tax rate on crypto profits by imposing a flat rate of 20% on all gains from crypto trading. As reported by Cryptopolitan, the proposal places crypto profits under a different taxation framework, where specific income-generating streams are treated independently from business earnings or wages.

Japan bans crypto ETF-linked CFD trading without local approval

Japan’s Financial Services Agency sent a  message to the market, saying offering derivatives tied to overseas crypto ETFs is “not desirable.” The update came through a revised regulatory Q&A released this week. 

They cited the reason that Japan has not yet approved spot crypto ETFs. As a result, regulators argue that the investor protection framework remains incomplete. To that end, they do not want foreign ETF-linked products entering the local market through side doors. 

This decision directly affects contracts for difference, or CFDs. These products enable traders to bet on price movements without owning the underlying asset. In this case, the underlying assets were US-listed Bitcoin ETFs, such as BlackRock’s IBIT. Once the guidance went public, IG Securities announced it would stop offering these ETF-linked crypto CFDs in Japan.

According to the agency, even if the ETF is listed overseas, its price still tracks the spot price of crypto. That makes any linked CFD, in practice, a crypto derivative. Under Japan’s Financial Instruments and Exchange Act, that puts these products in a high-risk category. The regulator also flagged weak risk disclosure.

Lawmakers still view crypto price swings as a threat to retail investors. They worry about leverage, fast liquidations, and sudden losses. CFDs amplify all three with global ETF exposure on top; the risks grow even faster. On the other side of the world, the US market races ahead with spot Bitcoin ETFs. 

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