Japan’s crypto ecosystem is entering a period of intensified regulatory scrutiny – and major exchanges are already adjusting. Bybit, one of the world’s top digital asset trading platforms by global derivatives volume, has paused new account registrations for Japanese residents and nationals. The move comes as Japan’s Financial Services Agency (FSA) prepares to introduce stricter rules for digital assets.
This development highlights growing compliance pressure on Virtual Asset Service Providers (VASPs) and underscores the need for strong legal guidance, especially for platforms with cross-border operations.
1. The development: exchange action meets regulatory tightening
On 30 October 2025, global crypto-exchange **Bybit – one of the world’s largest platforms by derivatives trading volume and a top-5 exchange by user base – announced that it will suspend new user registrations from Japanese residents and nationals starting 31 October 2025 at 12:00 UTC.
Bybit explained that this pause is part of its “proactive approach to align with the evolving framework set forth by Japan’s Financial Services Agency (FSA).”
Existing Japanese users can continue using the platform normally, as Bybit’s services remain operational during an internal compliance review. This review generally involves assessing onboarding procedures, updating documentation, strengthening custody measures and ensuring that all operations meet Japan’s upcoming regulations. Bybit has not provided a timeline for completion.
This move suggests that major exchanges are anticipating strict new rules in Japan and are adjusting their onboarding processes in advance. So far, Bybit appears to be the first major global platform to pause new Japanese accounts, although similar actions from other exchanges are expected as regulation tightens.
2. What is happening in Japan’s regulatory regime
2.1 Current framework
Japan has long regulated crypto-asset exchange services under the Payment Services Act (PSA) via registration of exchange service providers, user asset segregation, identity verification, and AML/CFT requirements. Since its introduction in 2017, the PSA has been viewed as one of the most mature and well-structured crypto regulatory frameworks globally, especially after the FSA strengthened it following incidents like the Coincheck hack.
In April 2025, the FSA published a discussion paper titled “Examination of the Regulatory Systems Related to Cryptoassets” which sets out proposals for reform of the regulatory framework.
2.2 Key elements of the proposed reform
According to the discussion paper, crypto-assets are proposed to be classified into two broad categories:
Type 1: “Fundraising/Business Activity Type” – tokens issued for a specific project, product, or platform.
Examples include: utility tokens (e.g., tokens granting access to a service), governance tokens (allowing voting in a protocol), or project-based tokens used to raise capital for development.
Type 2: “Non-Fundraising/Non-Business Activity Type” – widely circulated cryptoassets that do not come from a specific issuer, such as Bitcoin, Ether, and other decentralised tokens.
For Type 1 assets, the FSA emphasises the need for stronger information disclosure, clearer issuer obligations, and improved transparency to protect token purchasers.
For Type 2 assets, because they are decentralised or issuer-less, the focus shifts to regulating service providers – particularly exchanges/VASPs – and strengthening user-asset protection rather than imposing issuer requirements.
The paper also considers applying the Financial Instruments and Exchange Act (FIEA) to certain cryptoassets. FIEA is Japan’s primary securities and financial products law, governing investor protection, disclosure obligations, market-conduct rules, and the licensing of financial intermediaries. Applying FIEA to crypto would effectively treat some tokens like securities or financial products.
Further measures under discussion include introducing insider-trading rules for crypto, stricter asset-segregation requirements, and potential domestic asset-holding mandates to enhance investor protection.
2.3 Recent regulatory signals
- On 30 March 2025, media reported that the FSA plans to revise the FIEA to grant crypto-assets the legal status of “financial products,” enabling measures such as insider-trading rules. A draft bill is expected in early 2026.
- On 21 October 2025, Reuters reported that the FSA is considering allowing banking-group subsidiaries to register as crypto trading and custody providers, and permitting banks to hold crypto-assets for investment. This marks a major step toward mainstream acceptance, as direct bank participation signals stronger institutional confidence, deeper market credibility, and a more mature regulatory environment.
2.4 Market context
According to the FSA’s discussion paper, as of January 2025 in Japan, crypto-exchange accounts exceed 12 million and customer deposit balances top ¥5 trillion (equivalent to roughly USD 33–34 billion at current exchange rates).
That scale helps explain why the FSA is moving to upgrade oversight. On a global scale, Japan ranks among the more significant national markets for crypto adoption. A recent 2025 report identified Japan as the fastest-growing crypto market in the Asia-Pacific region, showing a 120% year-on-year rise in on-chain value received – a faster growth rate than seen in India, South Korea, or Indonesia.
In global adoption indexes, Japan often appears among the top 20 nations worldwide, putting it alongside countries with more mature crypto markets such as the UK and Canada.
Together, these figures and rankings highlight Japan’s importance in the global crypto ecosystem – both in terms of current scale and growing momentum – underscoring why regulators see a clear need for stronger oversight.
3. Why the exchange is acting and why it matters for VASPs
3.1 Why the exchange (Bybit) is pausing new Japanese accounts
From the exchange’s communication and public reporting, key reasons include:
• Anticipation of stricter rules
Japan is preparing a tighter regulatory framework, which is expected to increase compliance costs, licensing complexity, and operational obligations (e.g., enhanced asset segregation, stricter custody rules, possible requirements for a domestic entity, or holding assets onshore). Bybit appears to be creating space to study these upcoming standards and determine how to comply efficiently.
• Risk management
A temporary halt on new account openings allows Bybit to avoid onboarding customers during a period of regulatory uncertainty. This reduces potential future remediation burdens, administrative re-verification cycles, and enforcement exposure.
• Signalling compliance and goodwill
By publicly aligning the pause with the FSA’s evolving framework, Bybit is sending a message to regulators, partners, and banks that it intends to operate responsibly in Japan – a market known for strict consumer protection and AML/CFT standards.
• Competitive positioning (NEW)
By pausing now, Bybit could strengthen its competitive position. Exchanges that continue onboarding aggressively may face stricter scrutiny or enforcement once the new rules take effect. Bybit’s early adjustment may give it a reputational advantage, reduce regulatory risk, and potentially accelerate its ability to secure future licensing compared to slower-moving competitors.
3.2 Why this matters for VASPs, exchanges and international platforms
For any VASP, exchange, or crypto-platform considering Japan – or servicing Japanese-resident clients – the development is significant. Key implications include:
1. Onboarding and User Screening
Bybit’s pause signals that new-user registration may soon involve stricter KYC/AML checks, enhanced verification steps, higher technical standards, and possibly requirements for a local operating entity. Platforms should anticipate more rigorous onboarding obligations.
2. Jurisdictional Compliance Expectations
Operating in Japan, even on a cross-border basis, may increasingly require full compliance with Japanese registration or licensing under the PSA or FIEA – especially if service providers deal with Japanese residents. VASPs should review whether existing structures qualify for any exemptions or safe-harbour mechanisms.
3. Cross-Border Strategy and Global Footprint
Japan is one of the world’s most mature and strictly regulated crypto markets. Any tightening in Japan often influences regulatory thinking in other jurisdictions. Platforms with global ambitions will need to prepare for parallel movements across multiple markets.
4. Asset Classification and Custody Requirements
If certain crypto-assets are formally treated as “financial products” under the FIEA, custodial obligations, disclosure duties, insider-trading rules, and market-conduct regulations will apply. This could require new licences, upgraded infrastructure, or partnerships with regulated intermediaries.
5. Local Risk Exposure and Operational Adjustments
Platforms serving existing Japanese clients may need to adjust service models – such as adding domestic custody, implementing local servers, or strengthening investor-protection features. Additional compliance requirements for existing users are also possible.
6. Navigating the Innovation–Regulation Balance
The FSA’s discussion paper stresses the need to encourage innovation while strengthening investor protection. VASPs will need to build compliance frameworks that support responsible product development without compromising regulatory expectations.
4. Implications: What you (as a client/reader) should consider
4.1 For onboarding and ongoing client relationships
- Review whether your platform currently accepts Japanese residents or nationals, directly or indirectly (via VPN, shell-entities, reverse-soliciting). The fact that Bybit suspends new registrations suggests heightened regulatory risk in Japan.
- Be prepared for enhanced KYC/AML/CFT obligations: Japanese regulation already requires identity verification, travel-rule compliance (since the 2022 amendment) and segregated custody. The upcoming regime may add further obligations under the FIEA regime.
- Evaluate your user-asset custody and infrastructure localisation: Token storage, domestic asset-holding orders (a proposed measure) could require assets of Japanese clients to remain within Japan in the event of insolvency.
- Revisit your terms of service and onboarding disclosures. If cryptoassets are reclassified as financial products, then marketing, disclosures and suitability obligations may increase.
4.2 For listing and token operations
- If you list tokens or facilitate token issues accessible to Japanese users, plan for disclosure obligations: Type 1 tokens (fundraising/business tokens) may soon face issuer obligations around information provisioning.
- Review market-conduct controls: The FSA is considering insider-trading sanctions and unfair-trading rules for crypto. Platforms may need surveillance, monitoring and reporting frameworks.
- Consider whether separate licensing will be required for intermediary services: The discussion paper contemplates a distinct intermediary licence for those that connect users to exchanges without custody.
4.3 For global strategy and platform structuring
- If you are planning to expand into Japan, or currently have Japanese client exposure, perform a jurisdictional gap-analysis: Whether you need to register as a crypto-asset exchange service provider (CAESP) under the PSA, or whether you will require registration under the FIEA in future.
- Monitor local entity risk: If you服務 Japanese users from offshore, there may be increasing regulatory pressure to establish a local physical presence or be subject to local enforcement.
- Align product-roadmap with regulatory timelines: The proposed reforms suggest bills may be submitted in 2026. Planning ahead gives you a competitive advantage and helps avoid disruptions to onboarding or service.
How Cryptoverse Lawyers can support your operations
At Cryptoverse Lawyers, we are positioned to assist international platforms, VASPs and exchanges in adapting to Japan’s evolving crypto-asset regime. We provide services across:
- Regulatory licensing and registration strategies (PSA/CAESP, FIEA pathway) for Japan-facing operations.
- Compliance framework development tailored for Japanese investor protection standards (including custody, segregation, disclosure, investor education).
- Onboarding and KYC/AML/CFT workflows aligned with Japanese rules and global standards.
- Token-listing advisory (token classification, Type 1 vs Type 2 structure, disclosure obligations, insider-trading risk mitigation).
- Cross-jurisdictional alignment: integrating Japan-specific regulation into your global compliance matrix so you can service Japanese users without regulatory surprises.
- Strategic advice on whether and how to restructure service flows for Japan (for example, whether to suspend new Japanese registrations temporarily, as Bybit has done, or to adapt proactively and maintain access).
Conclusion
The decision by Bybit to suspend new user registrations in Japan serves as a clear signal that the Japanese crypto-asset regulatory landscape is shifting. As the FSA moves towards a regime that may treat cryptoassets as financial products under the FIEA, and introduces stricter investor-protection and market-conduct rules, VASPs and exchanges must respond thoughtfully.
For you – as an operator, advisor or stakeholder in crypto asset services with Japanese market exposure or interest, now is the time to assess onboarding policies, licensing status, custody and disclosure practices, and your broader Japan strategy. With the right legal and compliance support – such as that from Cryptoverse Lawyers – you can adapt effectively to this evolving regime and maintain competitive access to one of the world’s more developed crypto markets.