A Potential Shift in Policy
In a move that could significantly alter the landscape of financial regulations in Japan, the Financial Services Agency (FSA) is reportedly contemplating a revision of its existing guidelines to permit banks to hold cryptocurrencies like Bitcoin for investment purposes. This potential policy shift comes as a surprise, given that the current supervisory guidelines, which were revised in 2020, effectively prohibit banks from holding digital assets due to concerns over their inherent volatility. The report, which surfaced on Sunday, indicates that the FSA is preparing to discuss these reforms during an upcoming meeting of the Financial Services Council, an advisory body to the Prime Minister.
The proposed changes aim to bring the management of crypto assets in line with traditional financial products such as stocks and government bonds. This alignment could potentially open new avenues for banks to diversify their portfolios and engage with the burgeoning crypto market. However, the FSA is expected to proceed with caution, exploring a robust framework to manage the risks associated with cryptocurrencies, particularly the sharp price fluctuations that could impact a bank's financial stability. Should the proposal gain approval, it is likely that the FSA will impose stringent capital and risk-management requirements on banks before they are allowed to hold digital assets.
Expanding Crypto Services
In addition to allowing banks to hold cryptocurrencies, the FSA is also considering enabling bank groups to register as licensed "cryptocurrency exchange operators." This would allow banks to offer trading and custody services directly to their customers, further integrating cryptocurrencies into the mainstream financial system. The move reflects the rapid growth of Japan's crypto market, which has seen the number of registered crypto accounts surge to over 12 million as of February 2025, a figure that is approximately 3.5 times higher than five years ago, according to FSA data.
In a related development, the FSA has been working to shift crypto regulation under the Financial Instruments and Exchange Act (FIEA), moving it from the Payments Services Act. This change is intended to bolster investor protection and align cryptocurrency regulations with those governing securities. The regulator has noted that many issues within the crypto space bear similarities to those traditionally addressed under the FIEA, suggesting that it may be appropriate to apply similar regulatory mechanisms and enforcement strategies.
Collaborative Efforts and Future Outlook
Japan's largest banks are already making strides in the crypto realm. Notably, Mitsubishi UFJ Financial Group (MUFG), Sumitomo Mitsui Banking Corp. (SMBC), and Mizuho Bank have collaborated to issue a yen-pegged stablecoin. This initiative aims to streamline corporate settlements and reduce transaction costs, showcasing the potential benefits of integrating digital currencies into traditional financial systems. Meanwhile, the Securities and Exchange Surveillance Commission in Japan is gearing up to introduce new rules to curb and penalize crypto insider trading, further tightening the regulatory framework around digital assets.
The potential policy shift by the FSA could mark a significant turning point for Japan's financial sector, positioning the country as a more crypto-friendly jurisdiction. As the global crypto market continues to evolve, Japan's proactive approach to regulation and integration could serve as a model for other nations grappling with the complexities of digital asset management. However, the path forward will require careful consideration and balanced regulation to ensure that the benefits of cryptocurrency adoption are realized without compromising financial stability.