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Regulators in Hong Kong, Japan and Taiwan are providing a boost to cypto-related assets by enhancing consumer protection and market integrity

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Japan’s crypto-asset, stablecoin and security token regulations

This article outlines recent trends in Japan’s domestic crypto-asset and stablecoin markets, details significant amendments made to the Payment Services Act this year, discusses the ongoing evolution of the crypto-asset legal and tax framework, and covers recent legislative changes concerning tokenised real estate interests and investment fund regulations.

Crypto and stablecoin trends

Japan’s domestic crypto-asset market continues to show an expansionary trend. According to statistics from the Japan Virtual and Crypto Assets Exchange Association, registered crypto-asset exchange business providers reached 32 as of 30 April 2025. As of February 2025, the spot trading volume was about JPY1.9 trillion (USD13.1 billion), with margin trading volume at about JPY1.5 trillion.

The cumulative number of accounts held with these crypto-asset exchange business providers has exceeded 12 million, and the total balance of customer deposits has surpassed JPY5 trillion (both figures as of the end of January 2025). A survey on investor attitudes conducted by the Financial Services Agency (FSA) indicated that 7.3% of domestic individual investors with prior investment experience hold crypto-assets, a rate higher than those holding positions in FX trading or corporate bonds.

In the stablecoin sphere, SBI VC Trade commenced handling the US dollar-pegged stablecoin, USDC (USD coin), in April 2025. Several fund transfer service providers are exploring the issuance of Japanese yen-pegged stablecoins under their existing fund transfer service licences. The utilisation of DCJPY (digital currency JPY), a system for tokenising bank deposits, is also gaining traction, with issuance cases by GMO Aozora Net Bank and other ongoing projects involving multiple major banks and online banks.

Despite market growth, significant challenges persist. A major domestic crypto-asset exchange business provider experienced a large-scale hacking incident, resulting in the outflow of Bitcoin valued at about USD305 million, underscoring the continued importance of robust customer asset protection measures.

Concerns have also been raised regarding inappropriate investment management and advisory practices related to crypto-assets, alongside illicit solicitation activities by unregistered operators. There is also a recognised need to enhance user protection mechanisms and strengthen deterrence against unregistered businesses.

Amendments to PSA

The amendments to the Payment Services Act (PSA) concerning crypto-assets and stablecoins include:

1. Relaxation of reserve requirements for trust-type stablecoins (electronic payment instruments). Current regulations mandate that issuers of trust-type stablecoins (legally defined as “electronic payment instruments”) hold the full issuance value in demand deposits and/or similar highly liquid instruments. The amendment relaxes this requirement, permitting issuers to manage up to 50% of the issuance value in low-risk assets with minimal risk of principal impairment.

Eligible assets may include Japanese or US government bonds with a remaining maturity of three months or less, or time deposits that allow for early termination. This change is expected to improve the efficiency and global competitiveness of stablecoin issuers.

2. Establishment of a new “electronic payment instrument/crypto-asset service intermediary” category. Under the existing framework, entities acting solely as intermediaries between crypto-asset exchange service providers and users are subject to stringent registration requirements applicable to full-fledged exchange providers.

The amendment introduces a new, distinct category for intermediaries who do not take custody of customer assets. These intermediaries will focus exclusively on facilitating (brokering) transactions by connecting users seeking to buy, sell or exchange crypto-assets or electronic payment instruments with registered crypto-asset exchange service providers or electronic payment instrument transaction service providers.

As these new intermediaries will not hold customer assets, they will be exempt from capital adequacy requirements. As the anti-money laundering/countering the financing of terrorism (AML/CFT) obligations are imposed on the principal affiliated firms, these new intermediaries will not be directly subject to the AML/CFT regulations.

3. Introduction of domestic asset holding orders. To prevent the cross-border outflow of customer assets in the event of insolvency of a crypto-asset exchange business provider or electronic payment instruments service provider dealing only in spot transactions (meaning, not derivatives), a new legal mechanism is being introduced. This allows regulatory authorities to issue an order mandating that the provider’s assets be held within Japan. This measure codifies the approach taken during the bankruptcy proceedings of FTX Japan in 2022, where ensuring assets remained onshore proved effective in protecting customer interests, establishing it as a clear statutory tool.

Crypto-asset legal updates

As of April 2025, Japan is actively developing its legal and tax regimes for crypto-assets. The ruling Liberal Democratic Party’s Web3 Project Team (Web3PT) has put forward proposals advocating for the classification of crypto-assets as a distinct asset class under the Financial Instruments and Exchange Act (FIEA).

A key component of this proposal is the transition from the current tax treatment – where crypto-asset gains are typically classified as miscellaneous income subject to progressive tax rates up to 55% – to a system of separate financial income taxation at a flat rate of 20%. The tax reform proposals also include subjecting profits from crypto-asset transactions to separate self-assessment taxation and a loss carry-forward provision allowing taxpayers to offset losses against future gains for up to three years.

The FSA’s April 2025 discussion paper titled “Review of Systems Related to Crypto-Assets” seeks to balance market innovation with user protection. Discussions are particularly focused on classifying crypto-assets based on their function and establishing a regulatory system that is balanced with the regulations for security tokens subject to the FIEA.

Regarding crypto-asset exchanges, the current perspective suggests a low necessity for imposing market infrastructure regulations similar to the licensing system for traditional financial instrument exchanges or the rules governing proprietary trading systems operated by financial instrument firms.

However, it is acknowledged that since these platforms provide a venue for collective trading involving numerous parties, appropriate trade management and system development are essential points that necessitate further examination in the future.

Momentum is also building towards the introduction of crypto-asset exchange-traded funds (ETFs). Reports from KPMG and QUICK have proposed the development of domestic yen-denominated crypto-asset benchmarks and the establishment of the necessary legal and regulatory framework for ETF creation. Future legislative amendments are expected to pave the way for the “financial productisation” of crypto-assets.

Real estate STs and LPS Act

Significant legal changes have also impacted tokenised assets and investment structures.

1. Real estate security tokens (STs) under the FIEA. Due to the act amending parts of the Financial Instruments and Exchange Act and others, which came into force on 1 November 2024, rights based on tokenised real estate specified joint enterprise agreements (real estate STs) became subject to the FIEA. These real estate STs are now classified as “rights representing electronically recorded transferable securities” and similar instruments, and are legally considered securities under the FIEA.

This development means that the real estate specified joint enterprise operators (entities operating under the Real Estate Specified Joint Enterprise Act) handling these tokenised instruments must now comply not only with the Real Estate Specified Joint Enterprise Act but also with the FIEA and its associated regulations.

Specifically, if such operators engage in self-offering or private placements of real estate STs, they generally require registration as a type II financial instruments business operator or must file a notification under the framework for specially permitted businesses for qualified institutional investors, etc.

Amendment to the Limited Partnership Act for Investment (LPS Act) permitting crypto-asset investment. Amendments to the LPS Act have made it possible for limited partnerships (LPSs) to acquire and hold crypto-assets. Previously, the LPA Act narrowly defined the permissible business purposes for LPSs, which now includes crypto-assets due to the amendment.

3. This change facilitates venture capital investment via the established LPS structure into Web3-related startups and other emerging companies that utilise crypto-assets within their business models. It is important to note, however, that not all types of crypto-assets are necessarily eligible investment targets.

Atsumi & Sakai
Fukoku Seimei Bldg. (Reception: 16F)
2-2-2 Uchisaiwaicho,
Chiyoda-ku, Tokyo 100-0011 Japan
Tel: +81-(0)3-5501-2111
Fax: +81-(0)3-5501-2211

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Bumpy road to navigating Taiwan’s crypto conundrum

Cryptocurrencies are currently not accepted as currencies in Taiwan. Since 2013, the positions of both the central bank and Financial Supervisory Commission (FSC) concur that Bitcoin should not be considered a currency, but a highly speculative digital virtual “commodity”.

Since 2014, local banks have been ordered by the FSC not to accept Bitcoin or provide any services related to the cryptocurrency. Subsequent announcements and rulings by the FSC have upheld the same view.

Otherwise, no laws or regulations have been officially promulgated or amended to specifically deal with cryptocurrencies, except for:

1. 1. Regulations governing tokens with the nature of securities, which are commonly called “security tokens”, and their offerings commonly called security token offerings (STOs); and
   2. Anti-money laundering (AML) related regulations for virtual asset service providers (VASPs).

Token offerings

The core regulatory issue regarding a token offering, such as an initial coin offering (ICO), is whether it would be considered an offering of securities under Taiwan’s securities regulations. If so, it is subject to Taiwan’s Securities and Exchange Act (SEA).

If considered to involve an offer and issue of securities (so tokens are considered security tokens), it would be an illegal fundraising activity in violation of the SEA unless STO regulations are followed.

Security tokens and STOs

In 2019, the FSC officially issued a ruling designating cryptocurrencies with a certain nature as “securities” (i.e. security tokens) under the SEA.

Accordingly, security tokens refer to those that:

• • Utilise cryptography, distributed ledger technology or other similar technologies to represent their value that can be stored, exchanged or transferred through a digital mechanism;
  • Are transferable; and
  • Encompass all of the following attributes of an investment:

1. 1. Funding provided by investors.
   2. Providing funding for a common enterprise or project.
   3. Investors expecting to receive profits.
   4. Profit generated primarily from the efforts of the issuer or third parties.

The FSC and the Taipei Exchange (TPEx) jointly worked on a set of regulations governing STOs, which were finalised in 2020 and further amended in 2023.

The regulations are differentiated by the threshold of NTD30 million (USD930,000). An STO of NTD30 million or less may be conducted in compliance with the STO regulations. An STO above NTD30 million must first apply to be tested in the “financial regulatory sandbox” and, if a positive outcome, conducted pursuant to the SEA.

Key provisions for STOs of NTD30 million or less include:

1. 1. Qualifications. The issuer must be a company limited by shares incorporated under the laws of Taiwan and not listed on the Taiwan Stock Exchange or TPEx, or traded on the Emerging Stock Market.
   2. Types that can be issued. Only profit-sharing or debt tokens without shareholders’ rights.
   3. Eligible investors and limits. Only professional investors are eligible; and where the professional investor is a natural person, the maximum subscription amount is NTD300,000 per STO.
   4. STO platform operator. Should obtain a securities dealer licence, have minimum paid-in capital of NTD100 million and provide an operation bond of NTD10 million.
   5. Total offering amount. Total amount of all STOs on a single platform should not exceed NTD200 million.
   6. Other requirements and restrictions include those regarding trading (secondary market), real-name basis, NTD only.

Notably, due to such relatively stringent restrictions under the STO regulations – such as the qualifications of the issuer, eligible investors and amount limits, as well as compliance costs – only one STO programme has been launched to date.

Anti-money laundering

Although STO activities are limited, there have been crypto platform/exchange operators providing services in relation to cryptocurrencies that are not security tokens. As long as no security tokens are involved, there are no laws or regulations specifically dealing with the trading of cryptocurrencies – so no licence is required for operating crypto platforms/exchanges.

However, the Money Laundering Control Act (AML Act), the main law governing anti-money laundering, enmeshes VASPs into Taiwan’s AML regulatory regime.

Pursuant to current FSC regulations under the AML Act, the scope of VASPs covers those engaging in:

1. 1. Exchange between virtual assets and new Taiwan dollars, foreign currencies or currencies issued by mainland China, Hong Kong or Macau;
   2. Exchange between virtual assets;
   3. Transfer of virtual assets;
   4. Custody and/or administration of virtual assets or providing instruments enabling control over virtual assets; and
   5. Participation in and provision of financial services related to the issuance or sale of virtual assets.

In 2024, the FSC introduced new rules under the AML Act requiring VASPs to register with the FSC before offering any virtual asset-related services such as operating exchanges, trading platforms, transfer services, custodial services or underwriting activities.

Failure to register may result in criminal penalties, including imprisonment for up to two years, fines of up to NTD5 million, or both.

In response, many existing VASPs have submitted applications, with the FSC expected to announce approvals no later than September 2025.

Additionally, the regulations impose several operational obligations on VASPs.

These include:

1. 1. Establishing internal control systems and audit mechanisms;
   2. Implementing know-your-customer (KYC) procedures;
   3. Maintaining proper transaction records;
   4. Conducting ongoing monitoring of client activities; and
   5. Reporting both large transactions and suspicious activities to the authorities.

Latest developments

To lay the groundwork for future VASP regulation, the FSC has released guidelines addressing a wide range of issues, including:

1. 1. Obligations on virtual asset issuers, such as publishing a white paper;
   2. Review mechanisms for VASPs before listing or launching new virtual assets;
   3. Requirements for segregating customer assets from a VASP’s own funds;
   4. Ensuring transaction fairness and transparency;
   5. Operational management standards, including cybersecurity and the management of hot and cold wallets;
   6. Disclosure obligations;
   7. The establishment of internal controls and audit systems; and
   8. Extension of certain compliance duties to offshore VASPs.

Building on this foundation, the FSC moved to tighten oversight further by drafting a dedicated law for VASPs, announced in March 2025.

The proposed legislation focuses on minimum capital thresholds, qualifications for VASP responsible persons and beneficiaries, and enhancing consumer protection.

Once enacted, this law would shift the current system from a basic registration framework (under the AML regime) to a full licensing regime, requiring VASPs to obtain regulatory approval before offering virtual asset services.

However, it remains uncertain if and when the draft legislation will successfully be passed through the Legislative Yuan (the congress) in Taiwan.

DeFi and NFTs

New applications of cryptocurrency and blockchain technology such as DeFi (decentralised finance) and NFTs (non-fungible tokens) have also been hotly discussed.

Although no official government view has been announced on the rise of DeFi, from a local perspective, its classification should be determined case by case, and laws such as those relating to banking, trusts and futures would need to be reviewed for checking and ensuring compliance with Taiwan law.

Market players might argue that under a DeFi structure, no centralised business operator should be held liable for any activities, illegal or not. But from a legal perspective, this should be more of a factual/evidential matter, meaning the possibility that any person who initiates (or subsequently plays a major role in) a DeFi project might still be considered the real “actor” with respect to potential legal consequences cannot be ruled out.

With respect to NFTs, discussion focuses on what an NFT holder actually owns or obtained – whether digital artworks, music works, collectibles, baseball/basketball cards, photo albums and such. In which case, classification of any NFT or its offering should also be examined on a case-by-case basis.

Although there might be various ways of structuring an NFT (such as defining the “underlying asset”), it is suggested that the rights and obligations of participating parties – namely issuers, platform operators, and/or service/technology providers – be clearly identified/stipulated in the terms and conditions, especially from the perspective of copyright.

Also, notwithstanding the nature of any NFT being non-fungible and unique, the applicability of financial law, such as securities regulations, cannot be completely ruled out either.

Finally, it is also unclear whether DeFi market players would fall within the scope of the above-mentioned AML-related regulations, creating uncertainty for future development of such emerging activities from a regulatory viewpoint.

LEE AND LI, ATTORNEYS-AT-LAW
8F, No 555, Sec 4, Zhongxiao E Rd
Taipei 110055, Taiwan, ROC
Tel: 886 2 2763 8000
Email: attorneys@leeandli.com

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