Financial Product ≠ Security: Japan’s New Direction for Crypto Regulation
Samuel AYODEJI3 min read·Just now--
The real question isn’t what crypto is – but how it is regulated
There’s a recurring confusion in crypto regulation that keeps resurfacing when governments step in: are they trying to turn crypto into securities or something else entirely?
Japan’s latest move brings that tension back into focus.
Ten months ago, I reviewed Japan’s digital asset regulatory framework – its regulators, laws, and classification system. At the time, the structure was relatively clear. Today, that clarity is being tested.
Recent developments suggest a possible shift with a proposal to bring crypto assets within the scope of financial products. But to understand what this really means, it’s important to step back into Japan’s existing legal framework.
Japan has long taken a functional and dual approach to regulation.
Under the Payment Services Act (PSA), “crypto assets” are defined as cryptocurrencies not denominated in fiat currency and usable as a means of payment to unspecified persons. These assets are not treated as securities. Instead, the focus is on service providers.
Entities offering crypto asset exchange services must register with the Financial Services Agency (FSA), the primary regulator.
Alongside this sits the Financial Instruments and Exchange Act (FIEA), which governs investment-type tokens. It introduced the concept of electronically recorded transferable rights (ERTRs) to capture tokens issued in ICOs or STOs that resemble securities. The FIEA also extends to crypto derivatives.
In practice, classification depends on function and use:
• Payment and utility tokens → PSA
• Security-like tokens → FIEA
On April 10, 2026, a Bill was submitted to amend both the PSA and the FIEA. The proposal seeks to bring crypto assets within the broader scope of “financial products.”
This is not yet law – it is a proposed reform. And more importantly, it does not automatically mean that all crypto assets will become securities. Instead, the proposal appears to expand the regulatory perimeter.
The focus shifts toward:
• Intermediation
• Trading activities
• Advisory services
In other words, the emphasis is less on redefining the asset itself and more on regulating the ecosystem around it.
This has significant implications that must be duly noted and addressed.
First, the introduction of insider trading prohibitions, disclosure obligations, and stricter penalties signals a move toward applying traditional market conduct rules to crypto markets.
Second, it reflects a gradual shift from a payment-focused lens under the PSA to a more investment-oriented framework under the FIEA.
Third, while Japan’s functional classification approach is likely to remain, more activities – and more participants – may now fall within the scope of financial regulation.
For service providers, this means:
• Enhanced licensing requirements
• Higher compliance costs
• Increased regulatory scrutiny
This may strengthen investor protection and market confidence, but it also raises the barrier to entry for smaller players.
There are also cross-border implications. Foreign exchanges and token issuers targeting Japan may face expanded compliance obligations, extending the reach of Japanese regulation beyond its borders.
What’s happening here is not unique to Japan.
In many jurisdictions, regulators are taking the same regulatory stance:
They are not asking what crypto is, but are more concerned about how it behaves and who is responsible for it.
Japan’s proposal reflects that shift clearly.
One thing is clear, this development is not about reclassifying crypto assets in a strict sense. It is about reframing them within a financial market conduct system.
What is important to the regulator is simple:
Who intermediates it, how it is used, and what risks it creates.
That is where regulation is heading.