Japan Financial Services Agency Establishes Regulatory System to Classify Digital Assets

The Financial Services Agency of Japan established a regulatory system which classifies digital assets between two distinct categories.

The Financial Services Agency (FSA) in Japan has unveiled a new regulatory system classifying digital assets into two distinct categories to enhance transparency, market protection and stability.

The FSA’s initiative to classify crypto assets according to their characteristics aims to better match regulatory measures with the specificities of various tokens.

The framework system focuses on fund distribution methods to divide crypto assets into Type 1 and Type 2 categories.

Type 1: Business-Purpose Crypto Assets

This category includes crypto assets designed for business activities and funding sources for main projects. Altcoins from developing projects obtain their growth through community funding and fall into this category.

The Financial Services Agency plans to boost transparency of Type 1 crypto assets by making project issuers provide information which includes:

The main purpose of the funding together with the project description and associated risks for investors.

The regulatory framework offers potential traders essential project details for making well-informed decisions, thus helping reduce fraudulent or mismanaged investment risks. The FSA plans to enforce these regulations after a project obtains general investor support and may classify some Type 1 projects as security tokens to require additional regulatory compliance.

Type 2: Non-Business Crypto Assets

The group of established or decentralized cryptocurrencies consists of Bitcoin (BTC) and Ethereum (ETH) alongside other digital assets that do not issue tokens for business funding. The FSA names these assets “non-fundraising or non-business crypto” assets.

The FSA will not directly regulate issuers of Type 2 crypto projects because identifying one issuer proves challenging, and imposing obligations on them is difficult. The agency will implement regulatory requirements regarding Type 2 cryptocurrencies by focusing on exchange platforms.

The FSA requires crypto exchange firms to deliver information about significant price changes of Type 2 crypto assets when they affect market conditions. The system tracks market movement to identify market manipulation as well as illegal activities.

The FSA treats cryptocurrency as two types based on how digital assets operate and what they are designed for in its regulatory efforts in Japan. This regulatory system targets the achievement of investor protection as well as market stability alongside innovation promotion. Through its specialized regulatory approach for various crypto assets, the FSA creates conditions for Japan to develop a safer and more innovative crypto environment.