Japan Enacted New Rules for Crypto Custody, Derivatives and Token Offerings

Japan’s National Diet approved legislation on May 31, 2019 that would expand the country’s regulatory perimeter around cryptocurrency custody, derivatives and token-based fundraising. The measure amended the Payment Services Act and Financial Instruments and Exchange Act, pairing tighter customer-asset safeguards with securities-style oversight of leveraged products and specified investment tokens.

The House of Councillors passed Cabinet Bill No. 49 by majority vote on May 31, completing parliamentary approval after the House of Representatives had approved it on May 21. The legislation was not yet operational on May 31. Its commencement date would be established by cabinet order within one year after promulgation.

That distinction was material for companies and customers: the Diet had settled the statutory framework, but implementing rules, transition arrangements and the effective date still remained ahead.

Custody entered the exchange-registration perimeter

The legislation expanded the definition of crypto-asset exchange services to include businesses managing crypto assets for others even when that custody was not connected to buying, selling or exchanging them. Standalone custodians controlling customers’ assets could therefore face the registration and compliance framework applied to exchange providers.

The measure also required customer money to be held in trust and customer crypto assets to be segregated using methods presenting a low risk to users. For assets managed through other methods, a provider would have to hold the same type and quantity of crypto assets from its own property and segregate those reserves through the safer method.

The Financial Services Agency’s study-group record supplied the policy rationale. It described thefts from customer assets held through internet-connected private-key systems and recommended offline storage in principle, with same-asset reimbursement resources covering the portion kept online. The legislation created safeguards against custody losses; it did not insure token values or eliminate operational and cybersecurity risk.

Derivatives and investment tokens moved under the FIEA

The amendments added crypto assets to the Financial Instruments and Exchange Act’s definition of financial instruments for derivatives regulation. Businesses conducting crypto derivatives would consequently enter a framework involving registration and conduct obligations rather than operating solely under spot-exchange rules.

The Diet summary also addressed electronically recorded transferable rights, including certain blockchain-based interests carrying rights to profit distributions. Such instruments would be treated as Paragraph 1 securities, subject to corporate disclosure requirements, while businesses trading them professionally would fall within Type I financial-instruments regulation.

This did not classify every cryptocurrency or token as a security. The treatment applied to the legal rights represented and the transaction structure. Other crypto assets remained governed through the revised payments framework.

The legislation additionally replaced the statutory expression “virtual currency” with “crypto asset,” reflecting terminology used in international policy discussions. The change was more than editorial because it accompanied the expanded custody, derivatives and fundraising rules.

Why the enactment mattered

Japan already required cryptocurrency exchange providers to register, but the May 31 measure addressed activities that had developed around that system: third-party custody, leveraged trading and investment-type token offerings. It also converted lessons from exchange security failures into statutory asset-management obligations.

For market participants, the immediate consequence was prospective compliance work rather than an event-day trading restriction. The record reviewed for this reconstruction does not establish a measurable bitcoin or broader-market price response attributable to the vote, so no price, return or volume claim is made.

Later context

The law was subsequently promulgated as Act No. 28 on June 7, 2019 and entered into force on May 1, 2020 after implementing orders were completed. Those later milestones clarify the legislative sequence; they were not operative facts on May 31, when the verified development was final Diet approval.