REGULATION | Japan Approves Bill to Classify Cryptocurrencies as Financial Instruments

Japan’s government has approved a bill to classify cryptocurrencies as financial instruments marking a significant shift in how digital assets are regulated in one of the world’s largest crypto markets.

The Cabinet endorsed amendments to the Financial Instruments and Exchange Act that would bring crypto assets under the same regulatory framework as traditional securities, according to local media reports.

The move redefines cryptocurrencies from their previous status as a means of payment under the Payment Services Act to investment-oriented financial products reflecting their growing role in capital markets.

If passed in the current Diet session, it is expected to be implemented in fiscal year 2027.

Under the proposed rules,

• Insider trading using non-public information would be banned aligning crypto markets with safeguards applied to equities and other financial instruments.

• The legislation also introduces stricter disclosure requirements mandating that crypto issuers provide annual reports to improve transparency and investor protection.

• Penalties for non-compliance are set to increase, with unregistered crypto operators facing up to 10 years (from 3 years) in prison and higher fines (from 3 million Yen to 10 million), signalling tougher enforcement and a strong commitment to investors by regulators.

According to the Japanese Finance Minister, Satsuki Katayama:

“We will expand the supply of growth capital in response to changes in financial and capital markets, and ensure fairness and transparency in the market and investor protection.”

The reform is part of Japan’s broader effort to integrate digital assets into its traditional financial system while strengthening oversight as institutional participation in crypto grows.

The bill is expected to be submitted to parliament for deliberation, with implementation potentially beginning as early as 2027 if approved.

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