On November 7, during the fifth meeting of the Financial System Council’s Working Group on Cryptocurrency Systems, regulators discussed plans to bring crypto lending under the Financial Instruments and Exchange Act.
Their goal is to strengthen investor protection and promote fairer market practices in crypto lending services.
Closing the Loopholes
Right now, crypto firms that manage assets or offer staking services must register as crypto exchanges. But some businesses have been skirting this rule by framing their services as “borrowing” rather than management. This legal gap allows them to operate without the same oversight as registered exchanges.
The FSA’s concern is clear. When users lend out their crypto, they take on risks — like the borrower defaulting, or the token price dropping — yet the companies offering these services don’t face the same obligations as licensed exchanges. They’re not required to keep customer funds separate (a practice called segregated management) or store assets in cold wallets — offline storage that protects crypto from hacks.
Japan’s Financial Services Agency (FSA) discussed plans to tighten regulations on crypto lending, bringing it under the Financial Instruments and Exchange Act to close existing loopholes and mandate stronger risk and custody controls. The agency also proposed investment limits…
— Wu Blockchain (@WuBlockchain) November 7, 2025
This lack of safeguards has already caused trouble. Some platforms have offered unrealistically high returns, promising up to 10% interest per year, while locking repayments for years. Others have shown weak risk management, including failing to account for losses from sub-lending or slashing, when staked assets are partially seized as penalties.
A New Framework for Safer Markets
Under the new direction, the FSA plans to make crypto lending businesses build stronger risk controls. That means vetting the partners they lend to, clearly explaining risks to customers, and tightening how they advertise returns. These rules aim to prevent misleading promotions and help investors make informed choices.
🚨BREAKING 🇺🇸 $86 BILLION COINBASE CEO SAYS BITCOIN & CRYPTO MARKET STRUCTURE BILL IS ABOUT TO PASS! #Crypto #Bitcoin #Coinbase #Regulation #CryptoNews pic.twitter.com/cWXnCtlSW1
— Crypto News Hunters 🎯 (@CryptoNewsHntrs) November 7, 2025
Importantly, the changes won’t apply to institutional players — deals made between large investors will remain outside these regulations. The focus is on protecting everyday users who might not fully understand the risks tied to lending or staking digital assets.
This move aligns with a growing global trend. Regulators in the United States and Europe have also stepped up oversight after the collapse of major lending firms like Celsius and BlockFi in 2022, which together wiped out billions in customer funds.
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