Japan passes legislation reclassifying cryptocurrency as financial instruments
Japanese lawmakers modify the Financial Instruments and Exchange Act to bring crypto under the same regulatory framework as traditional securities and prohibit insider trading.
On Friday, Japanese authorities modified the Financial Instruments and Exchange Act to designate digital assets as financial instruments within the country's regulatory framework.
According to a report from Nikkei, the modification introduces prohibitions on insider trading and related activities that involve transactions based on confidential, non-public information.
Under the revised legislation, entities that issue cryptocurrencies will face new transparency requirements, mandating annual disclosure of relevant information to the public.
Previously, Japan's Financial Services Agency categorized digital assets under the Payment and Settlement Act, recognizing their potential application as payment mechanisms. The regulatory framework and classification system have now been modernized to accommodate the growing presence of institutional capital in the cryptocurrency sector.
Through this reclassification of cryptocurrency as a financial instrument instead of merely a payment tool, Japan is elevating digital assets from the experimental payment category to a position comparable with traditional equity markets.
Crypto under the TradFi umbrella
"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 at a press conference after the Cabinet meeting
The amendment has also introduced heightened penalties and prison sentences for cryptocurrency exchanges operating without proper registration.
Japan indicated its intention to incorporate cryptocurrency within the traditional finance framework back in January when Katayama stated, "To ensure citizens benefit from digital and blockchain-based assets, the role of exchanges and market infrastructure will be essential."
In December, the government supported initiatives to substantially lower Japan's maximum tax rate applied to cryptocurrency profits, proposing a uniform flat rate of 20% across the board.
Crypto ETFs coming to Japan
Japan is also working toward legalizing cryptocurrency exchange-traded funds (ETFs) by 2028, representing a significant transition toward widespread crypto acceptance, based on a January report.
Leading financial institutions, including Nomura Holdings and SBI Holdings, are positioned among the initial firms anticipated to launch crypto-linked exchange-traded products.