Japan reclassifies crypto as financial assets

Japan’s parliament on Wednesday approved revisions to the Financial Instruments and Exchange Act that reclassify crypto assets as financial assets. The legislation shifts oversight of digital assets from the Payment Services Act to a securities-style regulatory framework.

Under the new rules, issuers, exchanges and other market participants are prohibited from trading while aware of undisclosed material information, creating insider trading restrictions comparable to those applied to stocks and bonds.

Exchanges and trading platforms face enhanced supervisory obligations, including clearer licensing and reporting requirements. The law expands regulatory powers over custody, disclosure and corporate governance at crypto firms and clarifies responsibilities for intermediaries that hold customer assets.

Penalties for operating without proper registration increase. Maximum prison terms rise from three years to 10 years and maximum fines move from about 3 million yen to roughly 10 million yen. Insider trading violations carry penalties of up to five years in prison, fines up to 5 million yen, or both.

The revisions replace the term ‘cryptocurrency exchange’ with ‘cryptocurrency trading company’ in registration categories.

The law follows a series of industry failures and fraud cases that exposed gaps in consumer protection and market supervision.

Regulatory authorities are expected to publish implementation guidance and enforcement rules. Firms operating in Japan will need to review compliance programs, update internal controls, establish procedures to prevent insider trading, improve disclosure practices and strengthen custody arrangements to meet the new requirements. Firms that fail to comply may face administrative sanctions, criminal penalties or forced suspension of services.

The revisions align Japan’s approach to digital assets with a wider international trend of applying existing financial laws to cryptocurrencies and other digital tokens.