Japan’s FSA Moves to Tighten Crypto Lending and IEO Regulations

Japan's Financial Services Agency (FSA) is escalating its oversight of the digital asset sector with plans to impose stricter rules on cryptocurrency lending and initial exchange offerings (IEOs). The regulatory body aims to shield retail investors from significant financial losses by mandating clearer risk disclosures and enhanced custody safeguards.

During its fifth meeting of the Financial System Council's cryptocurrency working group, the FSA concluded that crypto lending operations should fall under the purview of the Financial Instruments and Exchange Act. The agency also proposed investment caps for IEOs to curb excessive speculation. This development follows Japan's broader push since April to refine its legal and tax frameworks for digital assets.

The FSA identified a regulatory gap that currently permits unregistered entities to operate crypto lending services without exchange registration. By 2026, the agency intends to reclassify cryptocurrencies as financial instruments rather than payment methods under the Payment Services Act—a move that WOULD subject market participants to more rigorous compliance standards.