Japan’s Financial Services Agency (FSA) has published a discussion paper on cryptocurrency regulations, aiming to classify digital assets into two distinct categories.
A recent report highlights that the FSA is inviting public input on a discussion document titled “Assessment of the Status of the Crypto Asset System.” The agency will be gathering feedback on this new framework for cryptocurrencies until May 10, 2025.
The paper proposes a two-tiered approach to crypto regulation, dividing digital assets based on how funds are allocated. The first category, known as Type 1, includes crypto assets utilized for business purposes or to source funding for the originating project. This category encompasses altcoins from emerging ventures that rely on community financing to support their development.
Conversely, Type 2 refers to more decentralized or established cryptocurrencies. Assets in this category include Bitcoin (BTC) and Ethereum (ETH), which do not issue tokens to raise business funds and are classified as “non-fundraising or non-business crypto.”
The regulatory implications differ for virtual assets based on which category they belong to, with regulations tailored to the characteristics of each type.
The FSA indicated that for Type 1 crypto assets, regulators see a critical need for greater transparency. They are pushing for projects to provide clear information to potential traders regarding the intended use of funds.
As a result, issuers of Type 1 tokens will be expected to reveal comprehensive details about the purpose of their funding, specifics about the project, and the associated risks of investing, among other requirements. Compliance with the Japanese FSA’s regulations, including periodic disclosure obligations, will be mandatory.
Regulations for Type 1 crypto will take effect once the project has attracted a considerable base of general investors. The FSA also intends to evaluate whether certain Type 1 projects fall under security token regulations.
In contrast, the FSA will not directly engage with issuers of Type 1 projects, as they believe it is challenging to pinpoint specific issuers to impose obligations upon. Instead, they will enforce regulations related to Type 2 cryptocurrencies on exchange platforms.
Under this structure, cryptocurrency exchange firms will be required to share information with the FSA regarding significant price changes for Type 2 assets that could impact the market.
“Most communication will likely occur through exchange companies,” the FSA noted in the policy document.
The committee aims to consider regulatory practices from other nations as well as public feedback before finalizing the cryptocurrency regulatory framework.
Earlier reports indicated that the FSA plans to amend the Financial Instruments and Exchange Act. The agency aims to present these changes to parliament as early as 2026. With the revision, cryptocurrencies will transition from being viewed merely as payment methods to being recognized as a distinct financial product category.