The world of crypto-assets (暗号資産 - angō shisan) is characterized by innovation and dynamism, but also by complexity and volatility, which can unfortunately lead to disputes between users and Crypto-Asset Exchange Service Providers (CAESPs) (暗号資産交換業者 - angō shisan kōkan gyōsha). These disagreements might arise from transaction errors, system failures, account management issues, fee misunderstandings, or concerns about the services provided. In Japan, recognizing the need for accessible and efficient dispute resolution mechanisms, the legal framework mandates that CAESPs participate in a specific out-of-court system known as Financial Alternative Dispute Resolution (Financial ADR).

This article describes Japan's Financial ADR system as it applies to the crypto-asset industry, explaining the obligations for CAESPs, the types of disputes covered, and the general process users can follow to seek resolution for their grievances.

Understanding Financial ADR in Japan

The Financial ADR system (金融ADR制度 - Kin'yū Ei-Dī-Āru Seido) in Japan is designed to provide a simpler, quicker, and generally less expensive alternative to formal court litigation for resolving troubles between customers and financial service providers. Its aim is to offer an impartial forum where disputes can be mediated and, ideally, settled amicably.

This system is underpinned by statutory provisions, often embedded within specific laws regulating different financial sectors, including the Payment Services Act (PSA) (資金決済に関する法律 - Shikin Kessai ni Kansuru Hōritsu) which governs CAESPs. A key feature of this system is the role of "Designated Dispute Resolution Organizations" (指定紛争解決機関 - shitei funsō kaiketsu kikan), which are neutral, expert bodies authorized by the government to conduct these ADR procedures.

CAESPs' Legal Obligation to Engage in ADR (PSA Article 63-12)

Article 63-12 of the PSA specifically addresses "Obligation to Conclude a Contract with a Designated Crypto-Asset Exchange Business Dispute Resolution Organization, etc." (指定仮想通貨交換業務紛争解決機関との契約締結義務等 - shitei kasō tsūka kōkan gyōmu funsō kaiketsu kikan to no keiyaku teiketsu gimu tō). This article mandates that CAESPs must take measures for dispute resolution and complaint processing. The primary way this is achieved is:

1. Concluding a Basic Contract (手続実施基本契約 - tetsuzuki jisshi kihon keiyaku): CAESPs are required to conclude a "Basic Contract for the Implementation of Dispute Resolution Procedures" with a Designated Dispute Resolution Organization that is authorized to handle disputes related to crypto-asset exchange services. This contract binds the CAESP to participate in the ADR procedures conducted by that organization.
2. Publicizing the Designated Organization: CAESPs must publicly disclose the Designated Dispute Resolution Organization with which they have concluded this basic contract.

The PSA also outlines alternative measures a CAESP must take if no such designated organization for crypto-asset disputes exists or if it is not possible to conclude a contract with one. These alternatives typically involve establishing robust internal complaint processing systems and potentially utilizing other recognized ADR bodies. However, as of the current regulatory landscape (May 2025), designated bodies are available and utilized.

The core purpose of this obligation is to ensure that users of CAESP services have access to an independent, fair, and effective out-of-court mechanism to resolve their disputes without immediately resorting to costly and time-consuming litigation.

Designated Dispute Resolution Organizations (指定紛争解決機関)

These organizations are central to the Financial ADR system.

• Designation by Authorities (PSA Article 99): Designated Dispute Resolution Organizations are formally designated by the Prime Minister of Japan (with this authority largely delegated to the Financial Services Agency - FSA). The designation is granted based on criteria set out in the PSA, ensuring the organization's neutrality, financial soundness, operational capability, and the expertise of its personnel to handle financial disputes fairly and effectively.
• Key Organization for Financial Disputes: For a wide range of financial services in Japan, including those related to securities and, by extension, many crypto-asset disputes handled by registered CAESPs, the Financial Instruments Mediation Assistance Center (FINMAC) (証券・金融商品あっせん相談センター - Shōken Kin'yū Shōhin Assen Sōdan Sentā) is a prominent Designated Dispute Resolution Organization. CAESPs often contract with FINMAC or a similar body appropriately designated for handling crypto-asset related disputes.
• Functions: These designated organizations typically perform several key functions:
  • Complaint Processing (苦情処理 - kujō shori): Receiving complaints from users, providing consultation, and often attempting to facilitate direct communication and resolution between the user and the financial service provider before formal mediation begins.
  • Dispute Resolution/Mediation (紛争解決手続・あっせん - funsō kaiketsu tetsuzuki/assen): Conducting formal mediation (or conciliation) procedures where impartial mediators help the parties explore solutions and reach a mutually acceptable settlement.
  • Information Provision: Offering information to the public about the ADR process and financial consumer rights.

The ADR Process for Crypto-Asset Related Disputes

While the specific procedural details may vary slightly depending on the designated organization, the general ADR process for resolving disputes involving CAESPs typically follows these stages:

1. Attempt Internal Resolution First: Generally, users are encouraged (and sometimes required) to first attempt to resolve their issue directly with the CAESP through its internal complaint handling channels. CAESPs are obligated to have such internal systems.
2. Filing a Complaint/Request for Mediation with the Designated Organization: If the dispute cannot be resolved directly with the CAESP, or if the user is unsatisfied with the outcome, they can then file a complaint or a request for mediation with the Designated Dispute Resolution Organization with which the CAESP has a basic contract. This is usually done by submitting a written application detailing the nature of the dispute and the desired outcome.
3. Eligibility and Scope of Disputes:
   • Covered Disputes: ADR typically covers a broad range of disputes arising from the crypto-asset exchange services provided by a CAESP. Examples include:
     • Issues with order execution (e.g., delays, incorrect pricing).
     • Problems with deposits, withdrawals, or account management.
     • Disputes over fees or charges.
     • Losses allegedly due to system failures or security breaches at the CAESP (though proving causation can be complex).
     • Concerns about inadequate explanations of risks or service terms.
     • Misleading advertising or unfair sales practices.
   • Common Exclusions: ADR may not be suitable for, or may exclude:
     • Matters that are primarily criminal in nature.
     • Disputes between CAESPs themselves or between a CAESP and its employees.
     • Disputes that are already subject to court litigation or have been finally resolved by a court.
     • Complaints deemed frivolous or vexatious.
     • Disputes where the monetary value is exceptionally high and better suited for court.
4. Complaint Processing and Initial Consultation: Upon receiving a request, the ADR organization will typically review it for eligibility. They may contact the user for further information and then notify the CAESP involved. An initial phase might involve the ADR organization attempting to facilitate further communication between the parties to see if a resolution can be reached at this stage (complaint handling).
5. Formal Mediation Procedure (あっせん手続 - assen tetsuzuki):
   • Appointment of Mediators: If the complaint proceeds to formal dispute resolution, one or more impartial mediators (紛争解決委員 - funsō kaiketsu iin) are appointed. These mediators are often legal professionals (lawyers), academics, or individuals with significant experience in the financial industry and dispute resolution.
   • Submissions and Hearings: Both the user and the CAESP will be asked to submit their respective positions, along with supporting documents and evidence. Hearings may be conducted, which can take various forms: in-person meetings, telephone conferences, or purely written submissions, depending on the ADR organization's rules and the nature of the case.
   • Role of the Mediator: The mediator's role is not to act as a judge and impose a decision. Instead, they act as a neutral facilitator. Their functions include:
     • Clarifying the issues in dispute.
     • Helping both parties understand each other's perspectives.
     • Identifying areas of potential agreement.
     • Exploring possible solutions and settlement options.
     • Facilitating negotiation between the parties.
6. Settlement Proposals (和解案 - wakai-an):
   During the mediation, the mediator may, if they deem it appropriate and helpful, formulate and present a settlement proposal to both parties for their consideration. This proposal is based on the mediator's assessment of the facts, the relevant legal principles, and the potential for a mutually acceptable outcome.
7. CAESP's Obligation to Cooperate: Under the terms of their basic contract with the Designated Dispute Resolution Organization, CAESPs are generally obliged to:
   • Participate in the ADR procedures in good faith.
   • Respond to requests for information and documents from the ADR organization in a timely manner.
   • Seriously consider any settlement proposals put forward by the mediator.
   • Attend hearings or meetings as required.
     FSA guidelines reinforce these expectations, indicating that CAESPs should not unreasonably refuse to participate or cooperate.
8. Outcome of the ADR Process:
   • Successful Settlement (和解成立 - wakai seiritsu): If both parties agree to a settlement, the terms are usually documented in a written settlement agreement. This agreement is typically binding on both parties as a contract.
   • Unsuccessful Mediation (あっせん不成立 - assen fuseiritsu): If the parties are unable to reach a mutually acceptable agreement, the mediation procedure is terminated without a resolution. The ADR organization will issue a notice to that effect. In such cases, the user retains the right to pursue other avenues, including initiating court proceedings.
9. Confidentiality:
   Financial ADR proceedings are generally conducted on a confidential basis. This encourages open discussion and disclosure by the parties without fear that statements made during mediation will be used against them in subsequent litigation (unless otherwise agreed or required by law).
10. Cost to Users:
    A significant advantage of the Financial ADR system for users is its accessibility in terms of cost. Procedures are often free of charge for the complaining user, or involve only a nominal application fee. This contrasts sharply with the potentially high costs associated with court litigation.

Benefits and Limitations of Financial ADR for Crypto Disputes

The Financial ADR system offers several advantages for resolving disputes in the crypto-asset sector:

• Accessibility: Lower costs and simpler procedures make it more accessible to average users than going to court.
• Speed: ADR processes are often designed to be quicker than the typically lengthy timelines of court cases.
• Expertise: Designated organizations and their mediators often possess specialized knowledge of financial products and services, including, increasingly, crypto-assets.
• Neutrality: Mediators are impartial and aim to facilitate a fair outcome.
• Focus on Amicable Resolution: The process encourages mutually agreeable solutions rather than adversarial confrontation.
• Confidentiality: Protects the privacy of the parties and the details of the dispute.

However, there are also limitations:

• Non-Binding Outcomes (in Mediation): Unless the ADR process specifically includes a binding arbitration component (which is less typical for standard financial ADR in Japan), the mediator's proposals are not binding. Settlement is voluntary, and if one party refuses, the dispute remains unresolved through ADR.
• Limited Enforcement Powers: ADR bodies do not have the coercive powers of a court to compel the production of evidence or enforce settlement agreements if one party reneges (though a settlement agreement itself can be enforced as a contract in court).
• Suitability for Certain Disputes: ADR may be less suitable for disputes involving very complex legal questions that require authoritative judicial interpretation, allegations of serious fraud requiring criminal investigation, or disputes where a precedent-setting legal ruling is sought.

CAESPs' Own Internal Complaint Handling Mechanisms

It is crucial to note that the Financial ADR system is generally intended as a secondary recourse. Japanese regulations, including FSA guidelines, require CAESPs to establish and maintain their own effective internal systems for handling user complaints and inquiries.

• These internal systems should be the first point of contact for users experiencing issues.
• CAESPs must have clear procedures for receiving, investigating, and responding to complaints in a timely, fair, and appropriate manner.
• If a complaint cannot be resolved to the user's satisfaction through the CAESP's internal process, the CAESP must inform the user about their right to access the relevant Designated Dispute Resolution Organization.

FSA Oversight and Broader Implications

The FSA oversees CAESPs' compliance with their obligations regarding dispute resolution, including their participation in the Financial ADR system. The number and types of complaints and disputes that a CAESP faces, and how it handles them (both internally and through ADR), can be important indicators for the FSA when assessing the CAESP's overall compliance culture, operational soundness, and customer service quality. Recurring issues highlighted through ADR can trigger closer supervisory scrutiny or regulatory action.

Conclusion: An Essential Safety Net for Users

Japan's Financial ADR system provides an essential safety net for users of crypto-asset exchange services, offering an accessible and impartial avenue for resolving disputes outside the traditional court system. The mandatory participation of CAESPs in this system reflects a strong regulatory commitment to user protection and to ensuring that avenues for redress are available when things go wrong. While ADR has its limitations, particularly the voluntary nature of mediated settlements, it plays a vital role in fostering trust and fairness in the interactions between users and crypto-asset service providers. For both CAESPs and their users, understanding the availability, process, and potential outcomes of Financial ADR is a key aspect of navigating Japan's regulated crypto-asset environment.