Japan reclassifies crypto assets as financial instruments under new law

Japan’s parliament passed revisions to the Financial Instruments and Exchange Act on Wednesday, officially classifying crypto assets as financial assets. This legislative shift transitions digital currency oversight away from the Payment Services Act, abandoning the previous framework that treated these tokens primarily as payment instruments.

The overhaul aligns the domestic digital asset market much closer to traditional finance by imposing standard market integrity requirements. For institutional investors and corporate executives, this regulatory convergence reduces ambiguity and integrates cryptocurrency operations into the established financial compliance framework.

The updated framework imposes additional compliance obligations on domestic crypto businesses to enhance market integrity and safeguard users. Consequently, issuers, exchanges and other market participants are now strictly prohibited from trading while in possession of undisclosed material information.

Reflecting this elevated regulatory status, the law changes the official terminology for registered businesses from cryptocurrency exchange to cryptocurrency trading company. This semantic shift underscores the broader financial role that authorities now assign to the digital asset sector.

The revised legislation introduces significantly harsher punishments for non-compliance to enforce these new operational standards. Companies operating without proper registration now face maximum prison sentences of up to 10 years, a substantial increase from the previous three-year limit.

Financial penalties for unregistered operations have also surged, rising from approximately 3 million Japanese yen, or $19,000, to roughly 10 million yen. Furthermore, individuals convicted of insider trading violations could face up to five years in prison, fines reaching 5 million yen, or both.

This domestic policy shift mirrors a broader international movement to subject digital assets to existing financial frameworks rather than treating them as a separate sector. Regulators in other major economies are currently taking similar steps to clarify how traditional laws apply to digital tokens.

South Africa’s tax authority recently published draft guidance detailing how current tax rules apply to these assets in early July. Meanwhile, authorities in the United States continue their ongoing efforts to clarify the application of existing securities and commodities regulations to the digital asset market.