In a significant move to tighten oversight of the digital asset industry, Japan’s Financial Services Agency (FSA) has strengthened its registration screening process for cryptocurrency exchanges. This regulatory shift, reported in early September 2025, reflects the country’s ongoing efforts to enhance risk management standards and ensure the long-term stability and security of its crypto ecosystem.
The updated framework revises the Payment Services Act, originally enacted in April 2017, to impose stricter evaluation criteria on exchange applicants. With cybersecurity threats and financial vulnerabilities becoming increasingly prominent—especially following high-profile incidents like the Coincheck hack—the FSA is taking a proactive stance to safeguard investors and maintain market integrity.
Enhanced Screening Process and Expanded Requirements
One of the most notable changes is the substantial expansion of the application review process. Previously, exchange applicants were subject to a limited set of evaluation questions. Now, the FSA has increased the number of screening inquiries to approximately 400, a fourfold increase from earlier requirements.
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This comprehensive questionnaire aims to assess every critical aspect of an exchange’s operations, including internal governance, financial resilience, cybersecurity protocols, and customer protection mechanisms. By deepening its due diligence, the FSA ensures that only well-prepared and compliant entities enter the regulated market.
Greater Oversight into Corporate Governance
Beyond paperwork, the FSA is now asserting direct oversight into corporate decision-making. Under the revised rules, cryptocurrency exchanges must submit minutes from board meetings as part of their registration and ongoing compliance obligations.
This requirement allows regulators to verify whether key issues—such as financial sustainability, system security upgrades, incident response planning, and risk mitigation strategies—are being actively discussed at the highest levels of management. It also serves as a deterrent against negligence or superficial compliance.
Additionally, the FSA will now conduct in-depth reviews of shareholder composition, with a specific focus on identifying any connections to antisocial groups or entities with questionable backgrounds. Regulators have long been concerned about potential money laundering risks or organized crime infiltration within financial services, and this measure strengthens their ability to detect and prevent such threats.
Current State of Japan’s Licensed Crypto Exchanges
As of recent inspections conducted in August 2025, the FSA evaluated 23 domestic cryptocurrency exchanges. The findings revealed a stark reality: only seven of these platforms operate under a full registration license. The remaining 16 are classified as provisional registrants—often referred to as “crypto dealers”—permitted to operate only while undergoing continued regulatory scrutiny.
This gap highlights the challenges many exchanges face in meeting Japan’s evolving compliance standards. The FSA’s rigorous inspection regime was intensified after the $532 million Coincheck hack in January 2025, which exposed critical weaknesses in digital asset custody and risk management practices across the industry.
Since then, the agency has prioritized on-site audits, system evaluations, and mandatory improvements for non-compliant platforms. The goal is not to stifle innovation but to build a trustworthy environment where users can engage with digital assets securely.
A Balanced Vision: Regulation and Industry Growth
Toshihide Endo, Commissioner of the FSA, emphasized in late August that the agency’s mission extends beyond enforcement. In remarks reported by Reuters, Endo stated that Japan aims to foster the growth of the cryptocurrency industry under appropriate regulation.
This balanced approach acknowledges both the transformative potential of blockchain technology and the need for robust safeguards. By setting high entry barriers, Japan positions itself as a leader in responsible crypto regulation—a model other nations may follow as global standards continue to evolve.
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Frequently Asked Questions (FAQ)
Q: Why is Japan increasing scrutiny on cryptocurrency exchanges?
A: Following major security breaches like the Coincheck hack, Japan is enhancing oversight to protect investors, prevent financial crime, and ensure exchanges maintain strong risk management and cybersecurity practices.
Q: How many questions are now part of the exchange registration process?
A: The FSA has expanded the screening questionnaire to about 400 questions, up fourfold from previous levels, covering governance, finance, security, and compliance.
Q: What documents must exchanges submit under the new rules?
A: Exchanges are required to submit board meeting minutes and detailed shareholder information to demonstrate active oversight of financial health and system security, and to rule out ties to antisocial elements.
Q: How many fully licensed crypto exchanges are there in Japan?
A: As of August 2025 inspection results, only seven out of 23 reviewed exchanges hold full registration; others operate under provisional status pending further review.
Q: Can foreign exchanges operate in Japan under these rules?
A: Foreign exchanges targeting Japanese users must comply with local regulations, including registration with the FSA or partnering with a licensed domestic entity to legally serve customers.
Q: What is the purpose of reviewing shareholder composition?
A: The FSA reviews ownership structures to detect links to organized crime or antisocial groups, reducing risks of money laundering and illegal fund flows within the financial system.
Building Trust Through Transparency
Japan’s latest regulatory enhancements signal a maturing digital asset market—one where innovation coexists with accountability. By demanding greater transparency in governance and operations, the FSA is setting a benchmark for regulatory excellence.
For users and investors, these changes mean increased confidence in licensed platforms. For operators, they represent both a challenge and an opportunity—to build stronger systems and earn public trust.
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As the crypto landscape continues to evolve, Japan’s approach offers valuable insights into how governments can support technological advancement without compromising safety or integrity.