Tokyo stock-take: Japan passes law to make crypto assets financial instruments

Japan's parliament has passed legislation bringing crypto assets under the country's Financial Instruments and Exchange Act (FIEA), placing them on the same regulatory footing as stocks and other financial products. The bill, which was approved by Cabinet in April 2026, completes a deliberate shift in Japan's regulatory approach — moving crypto from its longstanding home under the Payment Services Act, where it was treated primarily as a means of payment, to a securities-style framework administered by the Financial Services Agency (FSA). This will raise compliance costs for crypto businesses operating in Japan but may also clear the way for retail ETFs and greater long term crypto adoption in Japan.

From payments to portfolio

Under the Payment Services Act, the FSA regulated crypto exchanges as payment service providers, with a focus on custody arrangements and user protection. This came into place after the Mt Gox collapse. The PSA required segregated custody of client assets, which assisted FTX Japan customers in having their assets restored swiftly after the FTX collapse, but was viewed as a very heavy handed approach. The reclassification under the FIEA introduces a materially different set of obligations drawn from Japan's established securities architecture, which will be event stricter overall than the current approach.

The key changes include:

• Insider trading prohibition: crypto assets will be subject to restrictions on trading based on material non-public information, mirroring the insider trading rules applicable to listed equities;
  

• Annual issuer disclosure: entities that issue crypto assets will be required to publish annual disclosure documents, creating an ongoing transparency obligation that did not previously exist; and
  

• Strengthened penalties: prison terms for unregistered sellers increase from three to ten years; fines increase from ¥3 million to ¥10 million.

A market maturing into its framework

Japan has been among the most active jurisdictions in developing formal crypto regulation, having introduced exchange registration requirements under the Payment Services Act as early as 2017 following the Mt. Gox collapse. The FIEA reclassification reflects the FSA's assessment that crypto assets have matured beyond their origins as payment instruments and now function as investment products warranting investor protection mechanisms similar to those applied to securities markets, but hopefully with enough tailoring to ensure the obligations imposed on issuers and VASPs are able to be complied with.

The reclassification also sets the stage for further market infrastructure development. Japan's finance minister has publicly supported crypto integration into domestic stock exchanges, and SBI Group has announced the development of Japan's first XRP exchange-traded fund. A parallel reform reducing the top marginal tax rate on crypto gains from 55% to 20% — aligning it with the rate applied to listed securities — is also progressing through the legislative process.

What now?

Crypto businesses operating in or with customers from Japan should:

• assess whether their activities will be captured by FIEA financial instrument provider registration requirements, rather than (or in addition to) their existing Payment Services Act registrations;
  

• review any token issuance arrangements to identify annual disclosure obligations that will apply under the new framework;
  

• update compliance programs to include insider trading monitoring and controls; and
  

• monitor FSA guidance on implementation timelines, as transitional provisions are yet to be confirmed.

The reclassification aligns Japan with the broader trajectory visible in the EU under MiCA or the Australian approach treating those dealing with tokens as needing licensing, but differs from the US CLARITY Act approach, which clearly carves out tokens from the definition of securities if they don't include security like features — a global trend but with an important split toward treating crypto assets closer to or as a distinct but recognisable category of financial product. Time will tell if the imposition of securities rules can properly work with decentralised products and tokens.

By Michael Bacina