Japan reclassifies cryptocurrency as financial instrument in major legislative change

The Japanese government passed an amendment to the Financial Instruments and Exchange Act on Friday, officially reclassifying crypto assets as financial instruments.

According to a report by Nikkei, the new legislation introduces a ban on insider trading and prohibits any buying or selling of digital assets based on non-public information.

Previously, the Financial Services Agency handled crypto under the Payment and Settlement Act, viewing it primarily as a tool for transactions. The pivot to the new legal framework comes as a direct response to a surge in institutional interest. 

Under these updated rules, crypto “issuers” must adhere to higher transparency standards, including mandatory annual disclosures.

To support this transition, the Financial Services Agency has updated its oversight from the previous Payment and Settlement Act. 

Cryptocurrency “issuers” are now required to maintain higher levels of transparency, including the mandate to disclose financial information at least once a year. The amendment also stiffens penalties, increasing both fines and potential prison sentences for exchanges that operate without a license.

“We will expand the supply of growth capital in response to changes in financial and capital markets, and ensure market fairness, transparency, and investor protection,” Finance Minister Satsuki Katayama said in an accompanying statement.

Beyond immediate regulations, the government is also overhauling the tax structure to encourage market participation. In December, officials backed a plan to drop the maximum tax rate on crypto profits in favor of a 20% flat rate. 

This follows comments from Katayama earlier this year, suggesting that robust exchange infrastructure is essential for citizens to benefit from blockchain technology.

The long-term roadmap includes the legalization of crypto exchange-traded funds (ETFs) by 2028, as noted in a January report. Major financial players, such as Nomura Holdings and SBI Holdings, are already expected to lead the development of these crypto-linked products as the country prepares for broader mainstream adoption.