Japan Moves to Treat Cryptocurrencies as Financial Instruments in FIEA Overhaul

Japan's government has approved legislation to amend the Financial Instruments and Exchange Act (FIEA), a shift that would formally classify cryptocurrencies as financial instruments for the first time. The bill, reported by local media, is designed to strengthen investor protection and market transparency as digital assets are increasingly used for investment rather than payments. It introduces rules aimed at curbing insider trading, including a ban on transactions based on nonpublic information. Crypto issuers would be required to make annual disclosures. Under the proposal, registered operators would be redesignated from "crypto asset exchange business" to "crypto asset trading business," reflecting their investment-facing role. Penalties would also be tightened: unregistered sellers could face prison terms of up to 10 years, while the maximum fine would rise from about $18,800 (¥3 million) to $62,800 (¥10 million). If the Diet passes the bill during the current session, the government expects the framework to take effect in fiscal 2027. Crypto has so far been regulated under the Payment Services Act, but oversight would shift to the Financial Services Agency (FSA) under the FIEA to bring the sector closer to traditional securities regulation. Following the cabinet meeting, Finance Minister Satsuki Katayama said the government aims to expand the supply of growth capital while ensuring market fairness, transparency and investor protection. The regulatory overhaul comes alongside a separate proposal to cut the maximum tax rate on crypto gains from 55% to 20%, matching Japan's capital gains tax rate on stocks. Together, the moves point to a two-track strategy: tougher compliance standards paired with a lighter tax burden intended to support innovation and potentially make Japan more attractive for crypto businesses.