• Japan is looking to redefine crypto, moving it from just a “means of payment” to officially recognized financial instruments under their Financial Instruments and Exchange Act (FIEA).
• This change is being considered to close loopholes in the current Payment Services Act. Right now, this law doesn’t fully apply market abuse rules to crypto like it does for traditional investments.
• Legal experts will review these planned changes before they’re formally presented to parliament, likely in 2026.

Japan is taking steps to bring cryptocurrency regulation up a notch. The country is considering classifying cryptocurrencies under the Financial Services Agency (FSA) as a category that requires even stricter oversight. Exchanges themselves are reportedly planning to reclassify crypto tokens as financial instruments, rather than simply seeing them as ways to pay. This shift is aimed at tackling the growing problem of insider trading in the crypto space. This move comes after a noticeable increase in fraud and illicit activities within Japan’s cryptocurrency market.

Proposed Legal Changes Target Insider Trading

According to a report from NikkeiAsia, the FSA is working on updating the Financial Instruments and Exchange Act (FIEA) with these changes, with the goal of submitting them to parliament by 2026. The agency has been quietly consulting with experts behind the scenes to review the current legal situation. These discussions are centered around bringing cryptocurrencies into the same regulatory framework that already governs things like stocks and bonds.

Currently, in Japan, digital assets are legally viewed as “means of settlement” under the Payment Services Act. This means they’re mainly treated as tools for making payments, not as investment opportunities in themselves. Because of this, the current regulations are somewhat limited, especially when it comes to issues like insider trading.

The way crypto is currently categorized under the Payment Services Act doesn’t include the market abuse regulations that apply to standard financial instruments. This gap in the rules has meant that insider trading and similar misconduct involving crypto have, until now, fallen outside the reach of conventional market laws. Authorities are now aiming to bring the oversight of crypto in line with how other financial products are handled.

If cryptocurrencies are reclassified, insider trading laws would then apply to crypto transactions. This would involve creating rules around what constitutes insider information and setting up ways to enforce these rules. However, the specifics of penalties or how investigations will be conducted are still being worked out as these discussions continue.

Parliament Review Set for 2026

These proposed regulatory changes need to be approved by the Japanese parliament, with a target submission date of 2026. Before then, experts will keep refining the legal definitions and the rules that crypto companies will need to follow. These discussions are expected to wrap up before the proposed law is presented to parliament.

On top of this, the FSA has been closely watching the growth of Japan’s digital asset industry. Reports suggest that as crypto use has become more popular, so too has the number of fraudulent schemes. Authorities believe that stricter classifications could make the legal landscape clearer and help to patch up regulatory loopholes.

This proposal is part of a wider effort to make the market more transparent and to protect people involved in Japan’s growing digital asset world. The finer details of how this reclassification will affect crypto exchanges and users are still to be determined.