If you’re thinking about launching a cryptocurrency exchange in Japan, the first question you’ll face is: what does the Payment Services Act (PSA) actually demand? The answer isn’t simple, but getting the basics right can save you from costly fines, a criminal record, or a forced shutdown. Below is a practical guide that walks you through every step - from figuring out whether you need to register, to ticking off the paperwork, to keeping the regulator happy after you’re live.

What the PSA Covers and Who Must Register

Payment Services Act (PSA) is Japan’s primary law governing crypto‑asset exchange service providers, known as CAESPs. Under Article63‑2, any person or company that buys or sells crypto‑assets as a business must register with the Financial Services Agency (FSA). In plain English: if you’re taking fees, handling customer deposits, or matching buyers and sellers for a profit, you’re a CAESP and you need a licence.

The rule applies to both domestic firms and foreign operators that want a foothold in the Japanese market. Operating without registration is a criminal offence - up to three years’ imprisonment (or, from 1June2025, confinement punishment known as koukin‑kei) and a fine of up to ¥3million.

Legal Entity Options - Kabushiki‑Kaisha or Foreign Subsidiary

Japan only accepts two organisational forms for PSA registration:

• Kabushiki‑kaisha (KK) - a Japanese joint‑stock company. This is the default structure for local businesses.
• Foreign subsidiary - a Japanese KK owned by a foreign parent, or a branch (though the FSA has never approved a branch‑type registration, so a fully‑owned subsidiary is the practical route).

Why does this matter? A subsidiary gives you a Japanese corporate identity, a local board of directors, and the ability to open domestic bank accounts - all of which the FSA checks rigorously.

Capital and Net‑Asset Requirements

The PSA sets a clear financial floor:

1. Minimum capital of ¥10million (about US$70,000) at the time of application.
2. Positive net assets - you must show that the company’s liabilities are lower than its assets.

These numbers aren’t arbitrary; they act as a buffer to protect users if the exchange faces a market crash or a hacking incident.

Organisational Structure and Internal Controls

The regulator expects a robust governance framework. Key elements include:

• Board members and senior executives with clean criminal records and relevant finance or tech experience.
• Dedicated compliance officer who reports directly to the board.
• Documented policies for anti‑money‑laundering (AML), counter‑terrorist‑financing (CTF), and know‑your‑customer (KYC) procedures.
• Clear escalation paths for incidents - e.g., a breach of user assets must be reported to the FSA within 24hours.

If you’re a foreign firm, you’ll need to appoint a resident representative who can be served with official notices.

Consumer‑Protection Rules: Asset Segregation and Cold‑Wallet Storage

Japan’s consumer‑protection stance is among the toughest worldwide. The PSA mandates:

• Full segregation of customer crypto‑assets from the company’s own funds.
• At least 95% of user assets must be stored in offline cold wallets. The remaining 5% can sit in hot wallets for operational liquidity, but must be clearly accounted for.
• Regular independent audits of the segregation system (minimum once per year).

These rules prevent a “run on the bank” scenario where users scramble to withdraw assets after a market shock. Failure to meet them triggers administrative sanctions and can lead to licence revocation.

Step‑by‑Step Application Process

From start to finish, most applicants spend about six months in the FSA’s review window. Here’s a realistic timeline:

During the review, expect the FSA to probe your cold‑wallet architecture, test your AML screening engine, and verify the residency of your senior staff.

Foreign Exchange Considerations

If you’re based outside Japan, the biggest hurdle is establishing that local subsidiary. Here’s what to watch for:

• Bank account access - Japanese banks are cautious with crypto firms. Having a domestic capital injection helps.
• Resident director - must be a Japanese national or a permanent resident.
• Reporting obligations - quarterly financial statements filed with the Ministry of Finance, plus annual compliance reports to the FSA.

Because the FSA has not approved pure branch structures, be prepared to set up a fully‑owned KK, which typically costs ¥5-10million in incorporation fees and legal counsel.

Penalties for Non‑Compliance

Running an exchange without a PSA licence is a criminal act. The law outlines two layers of enforcement:

1. Criminal sanctions - up to three years’ imprisonment (or confinement punishment) and a ¥3million fine.
2. Administrative actions - licence suspension, mandatory corrective orders, or outright revocation.

The FSA also conducts random inspections. If you’re found to be mixing user assets with corporate funds, you could face an immediate shutdown order.

Practical Tips and a Quick‑Start Checklist

To keep the process from feeling endless, follow this cheat sheet:

• Determine scope early - list the exact tokens you’ll support. Each token must be declared in the application.
• Secure capital - open a Japanese corporate bank account and deposit at least ¥10million before you file.
• Build a compliance team - hire a certified AML officer and a legal counsel familiar with the PSA.
• Design cold‑wallet architecture - use multi‑signature wallets, hardware security modules, and keep backup keys offline.
• Draft clear policies - AML/KYC, transaction monitoring, incident response, and user‑asset segregation.
• Join a self‑regulatory body - JVCEA for spot‑trading platforms, JSTOA if you plan security‑token offerings.
• Prepare for the FSA interview - simulate a walk‑through of your order‑matching engine and wallet management system.

Once you’re licensed, you’ll still need to file quarterly compliance reports and undergo annual audits. Treat those as ongoing costs, not one‑off tasks.

Frequently Asked Questions

Getting PSA registration is a heavy lift, but the payoff is clear: you gain legal certainty, user trust, and the ability to operate in one of the world’s biggest crypto markets. Follow the steps, keep compliance front‑and‑center, and you’ll be positioned to grow your business under Japan’s robust regulatory umbrella.