Japan’s revised Payment Services Act (PSA) and Financial Instruments and Exchange Act (FIEA) came into force on May 1, marking a significant shift in how the country oversees cryptocurrency-related businesses. The amendments were approved by the Diet in May 2019 and finalized on April 3, 2020, following public feedback.
Key Changes to Regulatory Framework
The most notable updates include bringing cryptocurrency custody service providers under the PSA for the first time. Previously, these firms only held assets without executing trades. Additionally, cryptocurrency derivatives businesses must now register under the FIEA, and firms offering both custody and derivatives may be required to register as a full cryptocurrency exchange. International law firm Morrison & Foerster described the changes as “a significant change in the way the FSA will regulate cryptocurrency-related business activities of operators in Japan going forward,” adding that many aspects of scope and applicability remain open to interpretation.
The FSA also elaborated on how the new law could affect the approval of a bitcoin ETF in Japan, though no concrete steps have been taken yet. The regulator now has enhanced enforcement powers, including administrative penalties and criminal sanctions for non-compliant entities.
Unlicensed Exchanges Exit Japan
Japan currently recognizes 23 FSA-approved cryptocurrency exchanges. In response to the new rules, unlicensed trading platforms are modifying their terms to exclude Japanese residents. BitMEX, for example, announced it would restrict access for Japanese users starting from 11 p.m. JST on April 30 for new registrants and 12 a.m. on May 1 for existing users. “The restrictions are in response to the amendments to the Japan Financial Instruments and Exchange Act and Japan Payment Services Act effective as of 1 May 2020,” BitMEX said, promising to work with Japanese regulators.
On April 30, the FSA approved two self-regulatory organizations (SROs): the Japan STO Association and the Japan Virtual and Crypto Assets Exchange Association (JVCEA). These bodies will enforce strict standards on anti-money laundering, asset segregation, and system security, working closely with the FSA.
Market Implications
The new regulations impose clear registration and ongoing compliance requirements for custody and derivatives, likely encouraging institutional participation while pushing offshore platforms out of the Japanese market. The country now has a more centralized exchange landscape, and its approach is being watched as a potential model for other jurisdictions. The FSA continues to advise users to trade only on registered platforms and will monitor market developments closely.