Japan is moving ahead with a reform of the regulation of encrypted assets, centred on the transfer of encrypted asset management under the existing Payments Services Act to the framework of the Financial Commodity Transactions Act. As more and more assets, such as bitcoin, are being targeted by institutions, this adjustment means that Japan is integrating encrypted assets more explicitly into the financial market regulatory system.

The bill is in the Senate.

According to reports, the bill was approved by the Japanese Cabinet on 10 April and passed through the House of Representatives on 11 June. The bill is currently before the Senate for review and is expected to enter into force in 2027.

  • April 10: Cabinet of Ministers of Japan approves the bill
  • June 11th: House of Representatives pass deliberations
  • Projected 2027: new regulations in force

If reforms occur, encrypted assets will be placed in a separate financial product category in Japan, and the regulatory focus will shift further from payment instrument attributes to investment product attributes.

Regulatory focus shifted to disclosure and transactional behaviour

In the proposed direction, the new rules would cover information disclosure, market manipulation, insider trading and stricter regulation of service providers. The arrangements are intended to enhance market transparency and investor protection.

This change was also seen as a step in Japan in paving the way for the encryption of financial products such as ETF. With the approval of the United States spot bitcoin ETF, there has been a significant increase in the size of institutional holdings, and the connection of encrypted assets to traditional management systems has been strengthened. This adjustment in Japan reflects the regulatory response to this market change.

DeFi or regulation by physical control relationship

In the area of decentralised finance, regulation remains more difficult. The report cites the view that legislators do not necessarily apply the same set of rules directly to all DeFi activities, but are more likely to divide responsibilities around “who actually controls or affects users”.

This means that the protocol developers, front-end interface operators, wallet service providers, DAOs and token issuers may have different obligations in the future. Regulatory thinking is closer to a division by function and control, rather than just whether the project calls itself “decentroized”.

The current text of the bill does not directly cover self-custody and many DeFi specific scenarios. This part is expected to be further clarified by subsequent accompanying rules and regulatory guidance.