Japan’s FSA to Propose Reclassifying Cryptocurrencies as Financial Products by 2026

TLDR

• Japan’s Financial Services Agency (FSA) plans to reclassify cryptocurrencies as financial products instead of payment tools
• The proposal aims to curb insider trading in crypto markets with new regulations
• The FSA intends to submit amendments to the Financial Instruments and Exchange Act by 2026
• Cryptocurrencies would likely be placed in a separate category from traditional securities
• Japan has been making several pro-crypto moves recently, including tax reforms and stablecoin approvals

Japan’s Financial Services Agency (FSA) is planning to change how cryptocurrencies are classified in the country. The regulator wants to reclassify digital assets as financial products rather than payment tools. This change aims to bring crypto under insider trading rules.

The proposal is part of Japan’s effort to improve oversight of its growing crypto market. Currently, cryptocurrencies are categorized as a “means of settlement” under the Payment Services Act. This classification has focused on their use as payment tools.

The existing rules have created gaps in regulation. Specifically, they don’t address issues like insider trading in crypto markets. The FSA wants to fix this problem.

According to a Nikkei report on March 30, the FSA plans to submit amendments to the Financial Instruments and Exchange Act. These changes could go to Japan’s parliament as early as 2026. Expert groups are reviewing the details behind closed doors.

The new classification would treat cryptocurrencies differently from traditional securities. While crypto would be regulated as financial products, they would likely be placed in a separate category from stocks and bonds. This approach recognizes their unique characteristics.

If the changes are approved, companies offering crypto services would need to register with the FSA. The regulator also plans to enforce these rules regardless of whether a company operates in Japan. However, it’s not clear how these laws would apply to overseas entities.

The FSA hasn’t revealed all the details yet. Questions remain about what would count as insider information in crypto markets. The penalties for violations are also still being determined.

Another open question is how the rules would distinguish between different types of cryptocurrencies. The regulation might treat major cryptocurrencies like Bitcoin and Ethereum differently from speculative tokens like memecoins.

Japan’s Pro-Crypto Push

This move is part of a larger trend of pro-crypto changes in Japan. Earlier this month, the country issued its first license allowing a company to deal with stablecoins. SBI VC Trade, a subsidiary of financial group SBI, received approval to support Circle’s USDC.

Japan’s ruling Liberal Democracy Party has also moved to cut the capital gains tax on crypto. They plan to reduce it from 55% to 20%. This would match how other financial products are taxed in the country.

In February, reports suggested the FSA was considering lifting a ban on crypto-based exchange-traded funds (ETFs). This change would align Japan’s policy with Hong Kong, which approved crypto ETFs for trading in April 2024.

Crypto investments face high taxes in Japan compared to other financial products. Senior research analyst Jay Jo told Decrypt that ETFs only face a 20% capital gains tax. Lower taxes for crypto could “attract more institutions to crypto investments,” according to Jo.

Japan has shown increasing interest in Bitcoin. Last year, Japanese lawmakers urged regulators to pursue a National Bitcoin Reserve. The country is also home to Metaplanet, a Bitcoin treasury company that has acquired 3,350 BTC and plans to add more.

The proposed reclassification represents a major shift in how Japan views cryptocurrencies. By treating them as financial products rather than just payment tools, the government acknowledges their growing role as investments.

The FSA’s proposal comes amid rising cryptocurrency adoption in Japan. This growth has been accompanied by an increase in fraudulent activities, highlighting the need for stronger regulations.