Japan's FSA Flags DEX and DeFi for Priority Review at October 20 Meeting

DEX and DeFi Enter the Priority Queue

Japan's Financial Services Agency on Tuesday placed DeFi and decentralized exchanges among the candidate fields for priority institutional review, according to materials dated October 20 for its study group on digital and decentralized finance. The documents frame the task as balancing investor protection with innovation support, and set out how the regulator intends to examine rules for services that run entirely on-chain.

DeFi, in the FSA's description, covers financial services such as asset swaps, lending and borrowing that execute through programs on a blockchain, while a DEX runs exchanges of crypto assets through code, typically against automated liquidity pools. The materials restate the December 2025 report of the working group on the crypto asset system, which concluded that no clear regulatory method for DEXs has yet been established, and pointed to losses caused by flaws in program code as well as the risk of money laundering abuse. Because these services involve little human intervention, the working group argued that rules fitted to their technical character should be considered, distinct from the regime applied to existing crypto asset exchange operators.

Institutional design questions now center on firms that provide applications for connecting to DEXs. The study group materials suggest obligations such as risk explanation and identity verification, including anti-money-laundering measures, for services aimed at domestic residents, while calling first for a deeper grasp of how such services are actually used. Separately, SMBC Nikko Securities announced on October 2 that it will work with Uniswap Labs and other partners to build a DeFi platform for domestic investors, with anti-money-laundering and investor protection functions built in and development targeted for completion in mid-2027.

Nomura Seeks Overseas-Level Freedom

The October 20 session was the first meeting of the study group for the current fiscal year, taking up stablecoins and deposit tokenization, security tokens, and DEX and DeFi as its main agenda items. The group was established under the financial strategy for promoting growth investment that the FSA published on July 21, alongside a separate study group on sound use of AI and a public-private forum on on-chain finance in the AI era. The forum is due to compile an interim summary and a roadmap in early 2027. Hideki Kanda, professor emeritus at the University of Tokyo, chairs the group, with the Japan Cryptoasset Business Association and the Bank of Japan joining as observers.

Secretariat materials describe tokenized markets in which agreement and settlement complete on a blockchain, arguing that tokenizing both settlement means and assets could enable trading and settlement around the clock with sharply shortened settlement periods. Cumulative issuance of tokenized assets exceeded $35 billion as of July 2026, and one estimate cited in the documents puts the global market at $18.9 trillion by 2033. The materials also draw on the FATF's July DeFi report, which set out indicators for identifying a protocol's controller and proposed three regulatory categories depending on whether that controller exists and can be identified.

Nomura Holdings argued for a lighter touch. Toshinori Sasaki, head of the firm's digital asset strategy office, told the session that stablecoins and tokenized deposits have reached practical use in the United States while Japan remains at the demonstration stage, a gap the firm described as one step behind. It listed ten practical and legal issues and asked that services built on smart contracts, including DeFi, be regulated with freedom equal to overseas markets rather than ahead of them. Wallet providers that do not manage users' private keys should not face excessive regulation, the firm said, and the ¥1 million cap on holding and transferring overseas-issued stablecoins should be revisited.

Securitize Japan presented its own proposals, noting that the market capitalization of RWA tokens reached $39 billion at the end of September with average annual growth of 195% over the past three years. It pointed to the US Securities and Exchange Commission's September 17 adoption of a five-year, conditional exemption from exchange registration for on-chain trading of tokenized US-listed equities, and urged Japan to build a legal framework assuming a decentralized tokenization model, including a review of the securities settlement body and a design premised on public chains. A solo route lacking international compatibility, it warned, would widen the gap with overseas markets.

Nothing presented on Tuesday binds anyone yet. These are meeting materials and hearing records, not a draft bill or a final rule, and no effective date or set of obligated entities exists until the FSA turns the discussion into legislative proposals. What the session does fix is sequencing: DEX and DeFi now sit in the review queue alongside stablecoins and security tokens, and the public-private forum owes an interim summary and roadmap in early 2027. Our reading is that the supervisor is converging on regulating the connection layer, the app and interface providers serving domestic residents, rather than protocols themselves, which matches the framing the December 2025 working group laid out. Whether Nomura's overseas-parity argument holds will show in the obligations eventually drafted for wallet and app firms.