Japan Cabinet Approves Bill to Classify Cryptocurrencies as Financial Products

Japan's cabinet has approved draft legislation that would reclassify cryptocurrencies as financial products under the Financial Instruments and Exchange Act, the same framework governing stocks and securities, marking a shift from treating crypto primarily as payment tools under the Payment Services Act. The bill bans insider trading in crypto assets, requires annual disclosures from issuers, and dramatically increases penalties for operating unregistered exchanges to up to 10 years in prison and 10 million yen ($62,800) in fines, up from three years previously. If passed by parliament, the law could take effect in fiscal 2027 and would grant the Securities and Exchange Surveillance Commission broader authority to police crypto markets. Minister for Financial Services Satsuki Katayama stated the reclassification aims to expand growth capital supply while ensuring market fairness, transparency, and investor protection in response to evolving financial markets.

Reclassification of cryptocurrencies under securities law

• ▪Japan has previously treated crypto mainly as a payment tool under the Payment Services Act
• ▪The Japanese draft amendment brings crypto assets under the Financial Instruments and Exchange Act, a framework used for stocks and other securities
• ▪Japan's cabinet approved a draft amendment classifying cryptocurrencies as financial products under the Financial Instruments and Exchange Act
• ▪The Japanese cryptocurrency reclassification law could take effect as early as fiscal 2027 if passed during the current parliament session

New regulatory requirements and enforcement measures

• ▪Japan's previous Payment Services Act approach to cryptocurrency focused on custody, anti-money laundering checks and exchange registration
• ▪Operating a cryptocurrency exchange without registration in Japan could bring up to 10 years in prison under the new rules, up from three years
• ▪Japan's Securities and Exchange Surveillance Commission would gain broader authority to police the cryptocurrency market under the draft amendment
• ▪Fines for operating a cryptocurrency exchange without registration in Japan could increase to 10 million yen ($62,800) under the new rules
• ▪Japan's draft cryptocurrency amendment bans insider trading in crypto assets

Policy objectives and market impact

• ▪Satsuki Katayama stated the cryptocurrency reclassification will expand the supply of growth capital in response to changes in the financial and capital markets
• ▪Satsuki Katayama stated the cryptocurrency reclassification aims to ensure market fairness, transparency, and the protection of investors
• ▪Satsuki Katayama is Japan's Minister for Financial Services

Perspective of Satsuki Katayama (Japan's Minister for Financial Services)

• ▪Japan's cryptocurrency reclassification will expand the supply of growth capital according to Minister Satsuki Katayama
• ▪Japan's cryptocurrency reclassification aims to ensure market fairness according to Minister Satsuki Katayama
• ▪Japan's cryptocurrency reclassification responds to changes in the financial and capital markets according to Minister Satsuki Katayama

Perspective of Cryptocurrency exchanges operating in Japan

• ▪Japanese cryptocurrency exchanges will face insider trading prohibitions under the Financial Instruments and Exchange Act framework
• ▪Japanese cryptocurrency exchanges will transition from payment services regulation to securities-style regulation by fiscal 2027

Perspective of Securities and Exchange Surveillance Commission

• ▪Japan's Securities and Exchange Surveillance Commission will apply securities market enforcement tools to cryptocurrency assets under the draft amendment
• ▪Japan's Securities and Exchange Surveillance Commission will transition from limited cryptocurrency oversight to broader market policing authority