If you're considering operating a cryptocurrency exchange in Japan, understanding the PSA registration requirements is non-negotiable. Payment Services Act (PSA) is Japan's primary law governing cryptocurrency exchanges and payment services, defining crypto-assets as legal property while excluding fiat-denominated instruments like prepaid cards. This framework sets one of the world's strictest regulatory standards. Let's break down exactly what you need to know in 2026.
Understanding Japan's PSA Framework
The Payment Services Act (PSA) treats cryptocurrencies as "crypto-assets," not currency. This means Bitcoin and Ethereum are legal property in Japan, but they can't be used as official payment methods like yen. The Financial Services Agency (FSA) Financial Services Agency (FSA) oversees this system. Unlike some countries that ban crypto, Japan has clear rules: exchanges must register, follow strict rules, and prove they can protect users. This creates trust but also high barriers to entry.
Who Must Register as a Crypto Asset Exchange Provider?
Any business handling crypto transactions must register as a Crypto Asset Exchange Service Provider (CAESP) with the FSA. This includes buying, selling, or trading crypto as part of your operations. The PSA defines "crypto-asset" precisely: it must not be tied to fiat currency (like yen or dollars). So, things like prepaid e-money cards or bank-issued coins don't count. If your business involves Bitcoin, Ethereum, or similar tokens, registration is mandatory. Skipping this step isn't an option-it's a criminal offense.
Key Financial and Operational Requirements
Operating a crypto exchange in Japan demands specific financial and operational standards:
- Minimum capital JPY 10 million with positive net assets to ensure financial stability
- Complete segregation of customer funds from company assets
- At least 95% of user assets stored in offline cold wallet storage to prevent hacking
- Comprehensive internal systems for compliance and risk management
These aren't suggestions. The FSA requires documented proof of each requirement. For example, cold wallets must be physically disconnected from the internet. Customer funds must never mix with company money. This protects users if the exchange faces financial trouble.
Handling Foreign Entities: Subsidiaries vs. Branches
Foreign companies face unique hurdles when seeking PSA registration. The Financial Services Agency (FSA) has never approved a branch structure for crypto exchanges. Instead, all foreign applicants must establish a Japanese kabushiki-kaisha subsidiary. This means:
- Setting up a fully registered Japanese company with local directors
- Meeting the same JPY 10 million capital requirement as domestic entities
- Obtaining proper licensing in your home country before applying
While this adds complexity, it ensures foreign exchanges operate under Japan's regulatory framework with full accountability. No foreign company has successfully registered via a branch office to date.
| Requirement | Domestic Entities | Foreign Entities |
|---|---|---|
| Legal Structure | Kabushiki-kaisha (stock company) | Must establish Japanese kabushiki-kaisha subsidiary |
| Minimum Capital | JPY 10 million | JPY 10 million |
| Local Presence | Registered in Japan | Subsidiary must be registered in Japan |
| Home Country Licensing | Not required | Required for application |
Consequences of Non-Compliance
Operating without PSA registration is a serious crime. Before June 2025, violators faced up to three years in prison and fines up to JPY 3 million. Now, under the 2022 Penal Code amendments, imprisonment is replaced with "confinement punishment," but fines remain. The FSA actively enforces these rules, conducting regular checks on registered exchanges. Unlicensed operations trigger immediate shutdowns and criminal investigations. This isn't theoretical-it's real enforcement. For example, in 2024, a Tokyo-based exchange was fined JPY 2.5 million for operating without registration.
Recent Updates to Japan's Crypto Regulations (2025)
In early 2025, Japan's Diet reviewed amendments to the PSA. These changes give regulators more power to order specific actions against non-compliant exchanges. The new rules allow the FSA to issue binding orders for things like freezing assets or halting operations without lengthy court processes. This shows Japan's commitment to evolving its regulatory framework alongside market changes. The amendments also clarify that security tokens (like tokenized stocks) fall under the Financial Instruments and Exchange Act (FIEA), not the PSA. This dual-system approach ensures appropriate oversight for different crypto types.
Frequently Asked Questions
What's the minimum capital required for PSA registration?
JPY 10 million with positive net assets. This ensures the exchange has enough financial resources to protect users and cover operational costs.
Can foreign companies register under a branch structure?
No. The FSA has never approved branch registrations. Foreign companies must establish a Japanese kabushiki-kaisha subsidiary to apply for PSA registration.
What happens if an exchange operates without registration?
Operating without PSA registration is a criminal offense. Penalties include confinement punishment (replacing imprisonment) and fines up to JPY 3 million. The FSA actively monitors and enforces compliance.
How long does the registration process take?
The application review takes up to six months. However, preparing documentation, building compliance systems, and setting up infrastructure often takes longer-sometimes over a year.
Are all cryptocurrencies treated the same under the PSA?
No. The PSA covers plain crypto assets like Bitcoin. Tokens with investment features (security tokens) fall under the Financial Instruments and Exchange Act (FIEA), which has stricter requirements.
2 Comments
Freddie Palmer
Japan's PSA framework is a great example of clear regulation; crypto-assets are treated as property, not currency, which makes sense. The FSA's oversight ensures exchanges follow strict rules; this builds trust among users. The minimum capital of JPY 10 million is necessary for stability; segregating customer funds is crucial. Cold wallets must be offline; this prevents hacks. Foreign companies must set up a Japanese subsidiary. The recent amendments give the FSA more power; it's a solid system overall. I appreciate the clarity here; it's not perfect, but it's a solid foundation. The key is compliance; let's all follow the rules. This sets a good standard for other countries to follow. It's impressive how Japan balances innovation with security.
Oliver James Scarth
Japan's regulatory approach is exemplary; it demonstrates national sovereignty in financial matters. The requirement for foreign entities to establish a Japanese subsidiary is non-negotiable. This ensures complete adherence to local laws. The FSA's enforcement actions, such as the 2024 Tokyo exchange fine, are necessary to maintain integrity. The PSA framework is a model for other jurisdictions; it's robust and well-structured. There is no room for foreign entities to circumvent these rules. Japan's commitment to security and compliance is commendable. This is why the country remains a leader in crypto regulation.