Japan's Lengthy Crypto Approval Process Drives Projects Overseas, Experts Warn

Japan’s regulatory approach to cryptocurrency is being criticized for stifling innovation, with Maksym Sakharov, CEO of decentralized banking platform WeFi, arguing that the nation’s rigid and time-consuming approval process is driving crypto projects overseas. The two-step authorization system—requiring initial review by the Japan Virtual and Crypto Assets Exchange Association (JVCEA) followed by final clearance from the Financial Services Agency (FSA)—can take 6 to 12 months or longer to complete [1]. This lengthy timeline, according to Sakharov, creates operational pressures on startups and crypto funds, compelling many to establish or expand operations in jurisdictions with more agile frameworks, such as Singapore, South Korea, and the UAE [1].

The current regulatory environment prioritizes risk mitigation over innovation acceleration, Sakharov noted, contrasting Japan’s “slow, prescriptive, and risk-averse” approach with more dynamic models elsewhere. For instance, the UAE’s streamlined onboarding process for blockchain projects and South Korea’s Virtual Asset Service Provider Act (VAUPA), which emphasizes ongoing compliance rather than pre-approval hurdles, offer alternatives that reduce bureaucratic friction. Similarly, Singapore’s clear guidelines for token listings provide a more predictable path for startups [1]. These international benchmarks highlight Japan’s growing risk of losing its early-mover advantage in the crypto sector as innovators seek jurisdictions with less regulatory friction.

Sakharov proposed reforms to address these challenges, including “time-boxed, risk-based approvals” to expedite reviews, the creation of a regulatory sandbox for experimenting with staking and governance models, and proportionally tailored disclosure requirements. Such measures, he argued, could help Japan retain domestic talent and attract international investment by reducing uncertainties around market entry. The status quo, however, is pushing projects to scale abroad, undermining Japan’s potential as a crypto hub [1].

The implications extend beyond crypto to Japan’s broader digital economy. Delays in approving blockchain applications—such as tokenized assets or smart contracts—hinder cross-industry adoption in sectors ranging from supply chain management to digital identity systems. Experts suggest modernizing regulatory infrastructure through technology-driven solutions like AI and blockchain could streamline compliance. A study by MDPI, for example, highlights platforms like AKI2ALL, which integrate artificial intelligence with decentralized systems to automate rule enforcement, potentially reducing bureaucratic overhead and approval times [2]. Such innovations could serve as a blueprint for Japan’s regulatory evolution.

Despite recent efforts by the FSA to adapt, critics argue incremental changes fall short without a systemic overhaul of approval processes. The push for AI-aided compliance, as demonstrated by projects like AKI2ALL, offers a scalable model for balancing regulatory rigor with operational efficiency [2]. Without urgent action, Japan risks ceding its position in the global crypto landscape to competitors prioritizing innovation-friendly policies [1].

Sources:

[1] [Japan’s ‘slow’ approval culture stifles crypto adoption: Expert](https://coinmarketcap.com/community/articles/6884cef47bcc423cceef7492/)

[2] [AKI2ALL: Integrating AI and Blockchain for Circular](https://www.mdpi.com/2075-5309/15/15/2629)