The Japanese Financial Services Agency (FSA) is considering changes to the way it regulates cryptocurrency exchanges.

The amendments will mean crypto exchanges will be regulated by the Financial Instruments and Exchange Act (FIEA), instead of the current legal framework, the Payment Services Act. The FIEA obliges securities companies to manage customer funds and securities, such as stocks, separately from corporate assets.

Under the current legislation, cryptocurrencies are legally positioned as the same means of payment as electronic money. Should the FSA start regulating exchanges under the FEIA, crypto will be treated as a financial product. The FIEA move will also open up the possibility of introducing crypto derivatives.

The proposed changes will reportedly enhance user protection and the catalyst for the decision is the need to strengthen the legal framework for exchanges following the 523m NEM hack at Coincheck early this year. Following the hack, the FSA launched investigations into 15 unregistered exchanges, where it found various security and regulatory shortcomings in operations.

Earlier this month, The Japan Virtual Currency Exchange Association, an industry organization established in April, announced a new set of rules prohibiting the handling of anonymous virtual currency and proposed voluntary regulations based on the protection of customer assets.