On December 10, 2025, the Working Group on the Cryptoasset Regulatory Framework, established under the Financial System Council, an advisory body to Japan’s Financial Services Agency, released its report (hereinafter, the “WG Report”) (Note 1).

The report proposes shifting the regulation of cryptoassets such as Bitcoin, which are currently regulated under the Payment Services Act based on their nature as payment instruments, to regulation under the Financial Instruments and Exchange Act (FIEA), treating them as investment products similar to stocks and bonds. Necessary legal amendments are expected to be legislated as early as 2026.

The WG Report was compiled in response to an inquiry made by the Minister for Financial Services in June 2025, requesting consideration of the appropriate regulatory framework for cryptoassets in light of the growing recognition of cryptoassets as investment targets among domestic and international investors, while balancing user protection and the promotion of innovation.

Under the Payment Services Act, engaging as a business in the sale or purchase of cryptoassets, exchange with other cryptoassets, brokerage, intermediation, or agency services related to such transactions, as well as the management of users’ funds or custody of cryptoassets on behalf of others, is defined as a cryptoasset exchange business (Article 2, Paragraph 15 of the Act). Cryptoasset exchange operators are required to register with the Financial Services Agency (Article 63-2 of the Act).

As of the end of October 2025, 28 operators were registered as cryptoasset exchange businesses. According to the WG Report, the cumulative number of accounts opened at these operators exceeds 13 million, and the balance of user deposits exceeds 5 trillion yen. Approximately 70 percent of cryptoasset holders belong to income brackets with annual income below 7 million yen, and more than 80 percent of individual accounts hold assets of less than 100,000 yen. These figures indicate that cryptoasset ownership has become commonplace among individual users. At the same time, complaints and consultations with authorities regarding fraudulent investment solicitations and transactions involving cryptoassets have been increasing.

Against this backdrop, discussions were held on reviewing cryptoasset regulations to establish a trading environment in which the public can engage in cryptoasset transactions with confidence and to strengthen user protection. The WG Report identifies five urgent issues requiring attention:

1. Enhancing information disclosure
2. Ensuring proper transactions and addressing unregistered operators
3. Ensuring appropriate operation of cryptoasset investment management and advisory activities
4. Ensuring fair price formation and trading
5. Ensuring security

In reviewing regulations to address these issues, it is important to enhance user protection and establish a sound trading environment while also supporting healthy innovation, as stated in the original inquiry. As a result of its deliberations, the WG Report presents proposals for regulatory reform based on the following seven pillars.

First, the WG Report proposes revising the governing legal framework by shifting the regulation of cryptoassets from the Payment Services Act to the Financial Instruments and Exchange Act.

Cryptoassets do not represent legal rights to receive profit distributions such as dividends or interest, unlike securities such as stocks and bonds regulated under the FIEA. Given this difference in nature, the report considers it appropriate to position cryptoassets under the FIEA as a regulatory category distinct from securities.

Regarding the scope of cryptoassets to be regulated under the FIEA, the WG Report deems it appropriate to cover cryptoassets as defined under the current Payment Services Act (Note 2). Tokens that do not fall under the Payment Services Act definition, such as non-fungible tokens (NFTs), and so-called stablecoins whose value is linked to fiat currencies and which qualify as electronic payment instruments under the Payment Services Act, should not uniformly be subject to FIEA regulation.

Second, the WG Report states that appropriate disclosure must be provided to cryptoasset users both at the time of initial sale and on an ongoing basis.

This requirement arises from several forms of information asymmetry:

1. Between general users and experts due to the technical and specialized nature of cryptoassets
2. Between issuers and users where a centralized administrator controls the source of a cryptoasset’s value
3. Between those who trade or hold cryptoassets and others regarding circulation and ownership conditions

Regarding the content of disclosures, the WG Report states that information essential for investment decisions, such as the nature and functions of the cryptoasset, supply volume, underlying technology, associated rights and obligations, and inherent risks, should be provided in an easy-to-understand manner for general users. For centralized cryptoassets with issuers, information about the issuer should also be disclosed. It also emphasizes the importance of clearly providing information on risks and product characteristics for individual cryptoasset issues.

The obligation to provide such information should, in principle, be imposed on cryptoasset exchange operators, who are in a position to review risks, legality, and business feasibility when handling cryptoassets.

The WG Report identifies three categories of centralized cryptoassets with issuers:

1. Cryptoassets for which only specific parties have issuance authority
2. Cryptoassets based on permissioned blockchains (Note 3)
3. Cryptoassets issued based on underlying token standards such as ERC-20, the standard used for fungible tokens on Ethereum

Whether a cryptoasset falls into these categories is to be determined through review by cryptoasset exchange operators and verification by self-regulatory organizations.

When issuers raise funds through the sale of cryptoassets, such sales should be subject to disclosure regulations regardless of whether the cryptoassets are newly generated or previously issued. However, in cases equivalent to small-scale private placements or professional private placements under existing FIEA securities regulations, disclosure obligations should be exempted whether the issuer conducts solicitation directly or through a cryptoasset exchange operator (Note 4).

Where disclosure obligations apply, the WG Report states that information prepared by issuers and by cryptoasset exchange operators should be published on websites and provided to customers prior to solicitation. For ongoing disclosure, timely disclosure should be required when events occur that have a material impact on investment decisions. Annual periodic disclosures may be required to supplement timely disclosures. The report also proposes establishing penalties and special civil liability provisions for false statements or failure to provide required information.

In cases where issuers broadly raise funds from the general public, financial audits by audit firms are considered desirable. Referring to existing regulations for equity crowdfunding, where financial audits are not mandatory (Note 5), the WG Report proposes setting investment limits for users when cryptoassets are sold without financial audits conducted by audit firms.

Third, the WG Report states that when engaging in the business of buying and selling cryptoassets, regulations equivalent to those applied to Type I Financial Instruments Business operators should generally apply. For cryptoasset-specific requirements not covered under existing Type I regulations, such as safekeeping measures, new provisions should be established under the FIEA.

Detailed recommendations are provided on individual issues, including:

1. Restrictions on concurrent businesses
2. Establishment of operational management systems
3. Management of user assets
4. Accumulation of reserve funds
5. Proper and smooth return of customer assets upon exit
6. Regulations on intermediary businesses
7. Borrowing of cryptoassets

The handling of cryptoassets by banks, insurance companies, and their corporate groups was also examined. The WG Report concludes that allowing banks and insurance companies themselves to issue or trade cryptoassets requires continued cautious consideration. It also states that cryptoasset intermediation by these institutions should be approached carefully. Conducting investment management businesses involving cryptoassets should be prohibited, given the general prohibition on investment management by banks and insurance companies themselves. However, holding cryptoassets for investment purposes by these institutions may be permitted, provided sufficient risk management and systems are in place, from the perspective of offering diversified investment options.

As noted earlier, complaints regarding fraudulent cryptoasset investment solicitations have been increasing. To deter illegal solicitation by unregistered operators, the WG Report proposes strengthening criminal penalties, utilizing court-issued emergency injunctions under the FIEA, and introducing a system that presumes cryptoasset sales contracts entered into by unregistered operators to be exploitative and therefore invalid (Note 6).

Additionally, the WG Report proposes:

1. Treating cryptoasset investment seminars and online salons as investment management and advisory businesses
2. Requiring cryptoasset exchange operators to confirm transaction purposes and conduct monitoring to prevent cryptoassets from being used as payment methods in fraudulent solicitations
3. Enhancing awareness of risks associated with overseas unregistered operators and decentralized exchanges, as well as promoting international cooperation on these issues

Fourth, the WG Report proposes improving financial literacy related to cryptoasset transactions. Fifth, it calls for strengthening cybersecurity measures.

Sixth, the WG Report examines whether regulations similar to those applied to financial instruments exchanges or proprietary trading systems should be imposed on order-matching services provided by some cryptoasset exchange operators.

The report concludes that, at present, price formation through matching functions is limited due to the nature of cryptoassets, and that the necessity of imposing strict market establishment regulations is low.

However, with respect to listing spot cryptoassets on existing financial instruments exchanges, the WG Report states that caution is warranted at this time, given the risk that exchanges would bear responsibility for potential loss of customer assets due to hacking.

The seventh pillar of the WG Report concerns the review of unfair trading regulations.

Provisions prohibiting fraudulent acts, dissemination of rumors, deceptive practices, and market manipulation with regard to cryptoassets trading were established through amendments to the FIEA in 2019. However, direct insider trading regulations were not introduced at that time, as it was considered difficult to predefine insiders and material facts in the context of cryptoassets (Note 7).

Taking into account recent international developments, including the introduction of cryptoasset insider trading regulations in Europe and South Korea, the WG Report revisits this issue and proposes introducing insider trading regulations for cryptoassets.

Specifically, the protected legal interest is defined as ensuring user trust in the fairness and soundness of trading venues provided by domestic cryptoassets exchange operators. The report provides detailed consideration of the scope of regulated cryptoassets, material facts, regulated persons, disclosure measures, prohibited conduct, and exemptions. It also proposes prohibiting the communication of undisclosed material facts and recommendations to trade, in line with insider trading regulations for stocks.

Additional proposals include:

1. Establishing an administrative surcharge system for unfair cryptoasset trading
2. Strengthening investigative authority and capacity of the Securities and Exchange Surveillance Commission
3. Fundamentally enhancing trade screening by cryptoasset exchange operators and market surveillance by self-regulatory organizations
4. Promoting investigative cooperation with foreign regulators under reciprocity principles

More than 17 years have passed since the publication of the paper under the name Satoshi Nakamoto that described the mechanism behind Bitcoin. During this time, cryptoasset trading has expanded dramatically. However, how cryptoassets should be regulated remains a subject of ongoing experimentation worldwide.

In Japan, the collapse of Mt. Gox, then one of the world’s largest cryptoasset exchanges located in Tokyo, following a cyberattack in 2014, led to the early introduction of cryptoasset regulation under the amended Payment Services Act promulgated in June 2016.

That regulatory framework strongly reflected the social conditions at the time, when Bitcoin was virtually the only cryptoasset and was primarily perceived as a payment instrument for purchasing goods and services or making money transfers. As a result, it does not necessarily align with the subsequent development of cryptoassets as investment products and fundraising instruments. Given the expanding use of cryptoassets for investment, as described in the WG Report, the current proposals are both timely and highly significant. Early enactment of legal amendments incorporating these proposals is strongly anticipated.

Although not addressed in the WG Report, discussions are also underway regarding tax system reforms in light of the growing prevalence of cryptoasset investment and ownership. Currently, personal income derived from cryptoasset transactions is treated as miscellaneous income subject to comprehensive taxation. There is growing debate over whether such income should instead be treated as financial income subject to separate taxation, similar to stocks and bonds.

Meanwhile, in the United States, rapid changes in cryptoasset regulation are underway under President Donald Trump, who has declared his intention to make the United States the global capital of cryptoassets. New spot cryptoasset exchange-traded funds have been successively listed on securities exchanges commonly used by stock investors.

In Japan, cryptocurrency Spot ETFs have not been listed to date, partly due to concerns that differences in tax treatment could place spot cryptoasset trading through exchange operators at an unfair disadvantage. Legal amendments and tax reforms following the WG Report may serve as a catalyst for change in this situation (Note 9).

(Note 1) Japanese Only - Financial System Council, “Working Group Report on the Cryptoasset Regulatory Framework,” December 10, 2025.

(Note 2) The Payment Services Act defines cryptoassets as:

1. “Property value that can be used to pay consideration for the purchase or rental of goods, or the receipt of services, to unspecified persons; and that can be bought and sold with unspecified persons as counterparties (limited to value recorded by electronic means on electronic devices or other objects, excluding Japanese currency and foreign currencies and currency-denominated assets; the same applies in the following item); and that can be transferred using an electronic data processing system” (Type 1 cryptoassets); and
2. “Property value that can be mutually exchanged with what is listed in the preceding item (1) with unspecified persons as counterparties; and that can be transferred using an electronic data processing system” (Type 2 cryptoassets).
   (Items in Article 2, Paragraph 5 of the Payment Services Act.)

(Note 3) This refers to a distributed ledger that requires permission from an administrator to participate in the network.

(Note 4) If a cryptoasset issuer sells cryptoassets on its own, it is considered necessary to be registered as a cryptoasset exchange business. In practice, it is common for issuers to outsource the handling of sales to a cryptoasset exchange operator (often referred to as an IEO: Initial Exchange Offering).

(Note 5) The investment cap for investors in equity crowdfunding (excluding specified investors) is the highest of:

1. 5 percent of net assets (excluding residential real estate),
2. 5 percent of income amount, or
3. 500,000 yen (if that amount exceeds 2,000,000 yen, then 2,000,000 yen).

(Note 6) Provisions already exist for sales contracts involving unlisted shares and similar instruments sold by unregistered operators (Article 171-2 of the Financial Instruments and Exchange Act).

(Note 7) However, if “insider trading” were to occur such that a person with access to internal information at a cryptoasset exchange operator purchases in advance a cryptoasset that the operator has decided to newly handle before it is “listed,” it appears possible to punish such conduct based on the above general regulation (Article 185-22 of the Financial Instruments and Exchange Act). In fact, in the United States, there has been a case in which “insider trading” in a cryptoasset deemed to be a “security” was punished under a general prohibition on fraudulent acts under securities law.

(Note 8) However, if legal amendments based on the WG Report’s proposals are implemented, insider trading regulations would apply to spot cryptoasset trading, whereas insider trading regulations would not extend to spot cryptoasset ETFs. The issue of how to think about this difference is also a point that should not be overlooked.