Japan’s FSA Proposes Two-Tier Crypto Regulation Framework
Japan’s Financial Services Agency (FSA) released a comprehensive discussion paper outlining a new framework that classifies crypto assets into two categories, aiming to tailor supervision based on asset purpose and means of fundraising.
Type 1: Fundraising-Focused Crypto Assets
Type 1 cryptocurrencies, according to the FSA’s discussion paper “Verification of the state of the system related to crypto assets”, are those that are used primarily for business purposes or for raising funds for projects. These would be typical of altcoins for nascent blockchain projects with continuing capital requirements in terms of development.
Type 2 projects will have stricter disclosure standards. Issuers must provide in-depth details on fund usage, project purpose, potential risks, and updates. As soon as retail investor demand gets to a certain level on a project, additional rules apply—most likely including oversight under Japan’s security token regulations.
Type 2: Decentralized and Established Assets
The second category, Type 2, consists of decentralized and widely applied digital assets like Bitcoin and Ethereum. These are classified “non-fundraising or non-business crypto,” as they do not provide tokens in order to raise capital.
When it comes to Type 2 assets, the FSA focus shifts to exchange platforms. As these cryptocurrencies typically do not have a central issuer, enforcement will be primarily about making exchanges disclose significant market-shaping events, such as substantial price movements.
Exchange Platforms in Regulator Spotlight
The FSA stated that exchanges would be in the spotlight of reporting and regulatory action, especially for Type 2 assets. “There is a possibility that correspondence will mainly be carried out by exchange companies,” the agency stated.
Future Steps: Comment and Legislative Action
The FSA is also inviting public comments on the draft system until May 10, 2025. It will also look at international trends in regulation before coming to a conclusion.
In the future, the FSA plans to revise Japan’s Financial Instruments and Exchange Act by 2026. The goal is to downgrade cryptocurrencies as a distinct category of financial products—below their current status as payment instruments.
This new two-layered framework will introduce greater sophistication and transparency into Japanese crypto regulation, achieving a balance between innovation and investor protection.
