A Nikkei report reveals that Japan’s Financial Services Agency (FSA) is working on new legislation to prevent domestic cryptocurrencies from being moved overseas if a foreign exchange fails. The law would impose a hold on assets, preventing exchanges from transferring domestic funds entrusted by foreign clients.

The regulation aims to protect Japanese residents from losing their funds, as FTX customers did in 2022. At the time, FTX was one of the top five exchanges globally, and its collapse exposed a shortfall of nearly $7 billion.

• We suggest giving this a read: From Boom to Bust: The Crypto Exchange Collapse Chronicles.

Currently, the hold orders apply only to companies registered as financial instrument exchanges — those dealing with the buying, selling, and management of traditional financial assets under Japan’s Financial Instruments and Exchange Act.

When FTX collapsed, the Japanese government was able to issue a hold order because the company was registered as a financial instruments platform. With the new legislation proposed by the FSA, domestic assets can be more effectively safeguarded on a larger scale.

Recently, the FSA has been assessing cryptocurrency regulations and lowering taxes on crypto-asset gains to foster a more favorable investment climate as 2025 approaches.

Last September, Bloomberg revealed that the FSA would review whether the current Payments Act still provides adequate protection for investors, as cryptocurrencies are now primarily used for investment rather than just as a payment method. This could lead to crypto being reclassified under the Financial Instruments and Exchange Act.

Leaked reports indicate that a major change could be reducing the tax on cryptocurrency profits, currently as high as 55%, to 20%—bringing it in line with the tax rate for other financial assets like stocks.

“It’s important to consider whether crypto-assets should be treated as financial assets for public investment. Cryptocurrencies are expected to drive wage growth and help build household wealth, but their use by individual investors remains limited for now”.

–From an FSA publication.

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