Japan Passes Law to Regulate Crypto as Financial Assets

Japan has passed legislation that reclassifies cryptocurrencies as financial assets, placing them under the Financial Instruments and Exchange Act (FIEA) rather than the Payment Services Act. This amendment to the current laws has been planned and approved in April and has now taken effect.

The change gives digital assets the same legal category as other financial products and brings crypto businesses under Japan's securities framework. The law is also meant to introduce insider trading rules for crypto assets and expand the Financial Services Agency's supervisory powers over the sector.

The new classification clears the way for additional reforms. Japanese lawmakers have been discussing lowering the tax on crypto gains from the current progressive rate, which can reach 55%, to a flat rate similar to the 20% tax applied to stocks. Any tax changes would require separate legislation.

The updated framework could also open the door to spot crypto exchange-traded funds (ETFs), although products would still need approval from the Financial Services Agency before they could be offered to investors.

On top of that, the legislation raised the maximum prison term for unregistered crypto operators from 3 years to 10 years, as well as increased the maximum fine from 3 million yen ($18,500) to 10 million yen. It also introduced stricter insider-trading rules and expanded disclosure requirements for crypto issuers and exchanges.