Japan's FSA to Consider Giving Banks Approval to Hold Crypto Assets

According to the FSA's proposal, the plan is to have a regulatory framework where crypto assets would be placed on the same level as genuine financial instruments such as stocks or bonds issued by the government. As outlined in a report from Yomiuri, under this framework, banks can buy, hold, and sell crypto assets within a regulated environment under tight rules to ensure financial health and stability. The policy is released at a moment when local and international trading of digital assets continues to expand, placing steadily more intense pressure on regulators to keep pace with the shifting realities of markets.

Japanese regulations currently effectively prohibit banks from holding crypto assets for investment. This is due to the FSA's 2020 revision of its supervisory guidelines, which excluded banking groups from such investments due to the high price volatility of underlying assets such as Bitcoin. In contrast to conventional securities, Bitcoin and other cryptocurrencies have no collateral or backing security underlying them, whose market value is therefore susceptible to rapid changes. A precipitous price drop, if banks hold heavy balances, would erode their capital foundations and pose a threat to overall financial stability. The 2020 rules were therefore introduced as a safeguard against such a risk at the system level.

The FSA's new thinking is not a blanket reversal of those rules but a step towards revising them in a form better adapted to the advanced level of the markets today. While even banks might ultimately be permitted to hold digital assets, regulators would need to prepare regulatory provisions for taking risk exposure into consideration while introducing caution.

Discussions in the working group would then naturally center on quantifying and controlling such risks e.g., via capital buffer requirements, limits on exposure size, and stress testing from time to time. The FSA is interested in ensuring that the financial stability of institutions remains safeguarded even amidst turbulent crypto-market environments.

Aside from the investment license, the FSA is considering whether to allow banking groups to register as crypto-asset exchange service providers, the official title of companies offering crypto trading, buying, or selling services in Japan. This would allow big banks to join the retail and institutional exchange market internally, rather than having to collaborate with licensed exchanges. By enabling the participation of banks, entities that are highly creditworthy and have institutional mechanisms for compliance, the government seeks to enhance public confidence and enable easier entry by individual investors in digital-asset markets in a secure way.

The FSA review is made at the moment when domestic crypto business has picked up. Through late February 2025, the number of crypto-asset accounts opened in Japan totaled over 12 million, which is nearly 3.5 times increase since five years ago. This steady growth testifies to the crypto investment mainstreaming among the Japanese population and reflects a shift towards mass participation from niche adoption. The expanding retail base has also heightened the necessity to develop a legal and regulatory platform that can implement the equilibrium between innovation and prudence.

With the recommended reforms by the Financial Services Agency (FSA) in allowing banks to invest in crypto-assets, major Japanese banks are making progress on a different front of digital-asset evolution. Three of Japan's largest banking groups, Mitsubishi UFJ Financial Group (MUFG), Sumitomo Mitsui Financial Group (SMFG) and Mizuho Financial Group have shown plans to jointly issue a stablecoin pegged initially to the Japanese yen (and potentially the U.S. dollar) for corporate settlement and cross-border payments. Press reports said the project would be developed on MUFG's "Progmat" blockchain platform and aim to offer an integrated framework for institutional involvement in digital-asset payments.

This advancement underscores the degree to which Japan's financial industry is not only responding to regulatory evolution (e.g., consideration by the FSA),but proactively positioning itself to take advantage of digital-asset infrastructure. Through enabling banks themselves to issue or back stablecoins, the sector could see a considerable expansion of institutional crypto-asset activity, beyond token-holding to issuance, settlement and infrastructure-provision.

If enacted, the FSA's model suggested would rank among the most significant regulatory shake-ups of Japan's financial-sector approach to digital assets in recent years. It would also move the country closer to international trends, where tokenized assets, stablecoins, and blockchains-based financial products are increasingly fields of interest to mainstream financial institutions. But no one in Japan is in a rush: the underlying philosophy of the review is not liberalization at all but a balanced adjustment that integrates crypto assets into the existing system of prudential regulation.

Even though no specific time frame has been set for the completion of the review, future deliberations by the Financial Services Council's working group are expected to decide on the contours of the new system. Among the items on the agenda are the methodology for risk management, potential caps on holdings, and disclosure levels for banks that handle crypto transactions. The talks are also likely to consider how any new regime exists alongside existing legislation covering financial instruments and exchange services.

The FSA's conservative strategy reflects Japan's general finance philosophy: to embrace innovation while maintaining systemic integrity. By attempting to establish an orderly environment in which banks can approach crypto assets responsibly, regulators hope to promote both investor protection and competitive development. In effect, the review represents a move towards integrating digital-asset finance into Japan's long-standing regulatory tradition, one of oversight, transparency, and public trust.