The Japanese Cabinet approved a bill to formalize cryptocurrency assets as financial products, with official implementation in 2027

On April 10, the Japanese government formally approved amendments to the Financial Instruments and Exchange Act at a Cabinet meeting. For the first time, it classifies crypto assets as financial instruments and brings them under regulatory oversight. The amendments explicitly prohibit insider trading using material nonpublic information, and at the same time require crypto-asset issuers to assume an annual information disclosure obligation. The amendments also significantly raise the maximum criminal penalties for noncompliant businesses. If the current Diet session completes the legislative process, the amendments are expected to take effect officially in fiscal year 2027.

Regulatory framework shift: from the Payment Services Act to the Financial Instruments and Exchange Act

Previously, Japan’s Financial Services Agency (FSA) regulated crypto assets under the Payment Services Act, treating them as payment instruments. As the use of crypto assets for investment purposes continues to expand, the share of users holding them for profit has risen significantly, and the current regulatory framework can no longer effectively protect investors’ interests.

Against this background, the FSA decided to move the regulatory framework to the Financial Instruments and Exchange Act, so that crypto assets are placed, in legal terms, alongside traditional financial products such as stocks and bonds. Relevant businesses will also face compliance standards similar to those for traditional financial institutions. This transition further aligns Japan’s crypto regulatory framework with the mainstream financial regulations of G7 major economies.

Key provisions of the amendments: stronger obligations and upgraded penalties go hand in hand

Main changes in this round of amendments

Prohibition of insider trading: Explicitly prohibits trading crypto assets using material nonpublic information, filling the gap in current regulations

Annual information disclosure obligation: Crypto-asset issuers must periodically disclose financial and business information to the relevant authorities and investors

Change of business name: Registered businesses are officially renamed from “crypto-asset exchange business operators” to “crypto-asset trading business operators”

Harsher criminal penalties: The maximum prison term for unlicensed operators is increased from 3 years to 10 years, and the maximum fine is increased from 3M yen to 10M yen

Government position: advancing market fairness and investor protection on two tracks

In a press conference after the Cabinet meeting, Japan’s Minister of Finance Satsuki Katayama said: “We will expand the supply of growth capital to respond to changes in the financial and capital markets, and ensure market fairness, transparency, and investor protection.”

This legislation is Japan’s systematic regulatory response to the trend of crypto assets being used for investment. In the short term, the rise in compliance costs for businesses may bring some adjustment pressure, but in the long run, a more完善 regulatory environment will help attract institutional capital into the market and enhance Japan’s international standing as a compliant crypto trading hub.

Frequently asked questions

When will the amendments to Japan’s Financial Instruments and Exchange Act take effect?

The amendments were approved by the Cabinet on April 10, but they still need to complete the legislative process through the current Diet session. If they pass smoothly, they are expected to be officially implemented in fiscal year 2027.

What specific impacts will the amendments have on crypto businesses operating in Japan?

Businesses must fulfill annual information disclosure obligations, comply with the prohibitions on insider trading, and update their registered business name to “crypto-asset trading business operator.” If businesses continue operating without holding a valid license, the maximum penalties can include up to 10 years in prison and a fine of 10M yen.

Why did Japan reclassify crypto assets from a payment instrument to a financial product?

The Financial Services Agency (FSA) states that in recent years, the investment use of crypto assets has increased significantly, and the regulatory framework under the Payment Services Act, which is centered on payment instruments, is no longer sufficient to effectively address the market situation. Therefore, Japan is shifting to apply the broader scope of the Financial Instruments and Exchange Act.