Japan to Reclassify Cryptocurrencies as Financial Products in Regulatory Pivot

Japan is fundamentally altering its approach to digital asset regulation by proposing to classify cryptocurrencies as financial products. The move, approved by the cabinet, would transition the sector's oversight from the Payment Services Act to the more stringent Financial Instruments and Exchange Act, the same framework used for stocks and other securities. Previously, Japanese regulators treated crypto assets primarily as payment tools, focusing on exchange registration, custody, and anti-money laundering protocols. The new framework aligns crypto assets with the regulations governing traditional securities to ensure greater market integrity. If passed by parliament during the current session, the law could take effect as early as fiscal 2027. The amendment introduces strict prohibitions on insider trading and mandates that issuers provide annual disclosures to enhance transparency for the investing public. Enforcement measures will be significantly strengthened under the new rules. Operating without proper registration could result in up to 10 years of imprisonment, a sharp increase from the current three-year maximum. Fines for violations could reach 10 million yen, approximately $62,800. Minister for Financial Services Satsuki Katayama stated that the initiative aims to protect investors and ensure market fairness while expanding the supply of growth capital. As part of this transition, the Securities and Exchange Surveillance Commission will see its authority expanded to police the market more effectively.