Japan’s Crypto Crackdown: Government Pushes Securities Law Integration Amid Industry Backlash

Tokyo shakes up digital asset landscape with controversial regulatory overhaul

The Financial Services Agency's bold move aims to bring crypto under traditional securities frameworks—sparking immediate resistance from exchanges and innovators who argue the approach stifles growth.

Industry players warn the proposed merger could force compliance costs through the roof while doing little to address actual market risks. Traders already joke about regulators being better at creating paperwork than protecting portfolios.

This isn't just bureaucracy—it's a fundamental clash between legacy financial thinking and decentralized future visions. Watch how Japan's decision could set precedent across Asian markets.

Because nothing says 'innovation-friendly' like squeezing disruptive technology into decades-old regulatory boxes designed for traditional stocks.

Japan Considers Major Shift in Crypto Regulation

The Financial Services Agency (FSA) presented a proposal during a Financial System Council working group on September 2 to regulate cryptocurrencies under the Financial Instruments and Exchange Act (FIEA). Currently, crypto assets are governed by the Payment Services Act, but the agency believes shifting oversight to the FIEA WOULD better address their rising role as investment products.

Under the new framework, cryptocurrencies would be classified alongside securities, subjecting issuers and exchanges to stricter requirements. The FSA argued that tighter rules would deter market misconduct while ensuring transparency for investors. To balance this change, the Payment Services Act provisions would be removed to avoid overlapping business compliance burdens.

The agency emphasized that crypto’s role in payment transactions would remain intact even under securities law. However, firms offering tokens must provide detailed disclosures about price volatility, reliability, and associated risks. The FSA will submit a legislative amendment to the ordinary Diet session next year.

Skepticism from Experts on IEOs

The proposal prompted debate within the meeting. Following industry group presentations, some members questioned whether incorporating cryptocurrencies into securities regulation is right.

Naoyuki Iwashita, a Kyoto University professor and former director at the Bank of Japan’s Institute for Monetary and Economic Studies, noted that primary tokens like Bitcoin and ethereum may not matter significantly whether they fall under the FIEA or Payment Services Act. Still, he raised concerns about extending the securities framework to all crypto assets.

Iwashita focused on Initial Exchange Offerings (IEOs) in Japan, citing data from the Japan Crypto Asset Business Association (JCBA). He pointed out that nearly all domestic IEOs have lost substantial value, with some tokens losing over 90% of their issuance price, leaving them “virtually worthless.” He said that labeling such assets as securities suitable for public investment under the FIEA would be “unthinkable.”