Japan’s FSA moves to regulate crypto management providers

Japan’s Financial Services Agency (FSA) is considering a prior notification system for companies offering crypto asset management systems. The new system aims to strengthen oversight following major instances of cryptocurrency fraud. 

On November 7, Nikkei, a working group under the Financial System Council, an advisory body to the Japanese Prime Minister, discussed the matter. Nikkei reported that the discussion followed a series of cryptocurrency fraud incidents. The report emphasized that the FSA is strengthening its response to ensure the stability of the crypto asset management systems.

Japan’s FSA moves to regulate crypto management providers

According to a Nikkei report, Exchanges must establish management procedures, such as storing clients’ virtual currencies in cold wallets in accordance with current rules and regulations. 

However, the report noted that companies offering crypto asset management systems are not directly subject to these laws. The new rule will only permit their usage on registered businesses’ systems.

According to the report, the new rule aims to address security flaws that can lead to theft or system malfunctions.

FSA especially mentioned the May 2024 DMM Bitcoin hacking incident, which resulted in the depletion of approximately 48.2 billion yen ($312 million) worth of Bitcoin. The Tokyo-based software company Ginco, to which DMM had outsourced its trade management, was identified as the hacker’s entry point.

According to the FSA, the majority of working group members supported the proposed new structure, calling for greater clarity in regulations on digital assets. Nikkei stated that the FSA plans to compile reports based on the discussions under the Financial Instruments and Exchange Act during the regular Diet session in 2026.

FSA launches stablecoin pilot with major banks

Recently,  the FSA has been stepping up its efforts to support regional stablecoin initiatives. 

On November 7, FSA  formally declared its support for a stablecoin pilot project comprising the nation’s three largest banks as Japan advances its efforts in payment innovation.

According to a statement released by the FSA on Friday, the experiment brings together Mizuho Bank, MUFG, and SMBC in a coordinated effort among the megabanks to jointly issue a stablecoin for payments. 

Mitsubishi Corporation, Progmat Inc., and Mitsubishi UFJ Trust & Banking Corporation are also members of the partnership. 

The FSA’s announcement confirms information reported by Nikkei earlier this month. The partnership is viewed as a critical step toward updating Japan’s financial system and facilitating quicker, more effective digital transactions across institutional networks.

Nikkei stated that the Mitsubishi Corporation project will be the first application under the idea, creating a potential distribution base that spans the banks’ more than 300,000 enterprise contacts.

According to the Nikkei’s release, the project will examine how various banking organizations can collaborate to create stablecoins, which are classified as “electronic payment instruments” under Japanese law. The project will also focus on maintaining operating procedures and ensuring regulatory compliance.

According to the FSA, the project’s goal is to confirm whether such a system can be implemented “lawfully and appropriately” in compliance with current financial regulations. Additionally, the agency stated that the project is expected to run from November 2025 onward for the foreseeable future.

The pilot is the first project under the FSA’s recently established Payment Innovation Project (PIP), a specialized program introduced on Friday to accelerate blockchain-based payment innovations. According to FSA, PIP operates within the FinTech Proof-of-Concept Hub, which has been supporting fintech projects since 2017. 

The FSA stated that it will post the findings and conclusions on its website after the completion of the pilot project. The findings and conclusions will include practical issues related to the interpretation of laws and regulations that may arise when providing services to the general public. 

The results will also include issues related to compliance and supervisory responses that were identified during the project.

The introduction of stablecoins would represent a significant shift in the country’s corporate payments landscape, following Japan’s growing acceptance of fiat-backed tokens.  According to Nikkei, authorities are preparing to approve domestic yen stablecoins, while other major institutions investigate deposit tokens and tokenized cash systems. 

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