Japan's FSA Plans to Reclassify Cryptocurrencies as Financial Products by 2026

Japan’s Financial Services Agency (FSA) is planning to reclassify cryptocurrencies as financial products instead of payment tools. This move aims to bring digital assets under stricter regulations, particularly to address issues like insider trading in crypto markets. Currently, cryptocurrencies are categorized as a “means of settlement” under the Payment Services Act, which focuses on their use as payment tools. This classification has left gaps in regulation, as it does not address issues such as insider trading.

The FSA intends to submit amendments to the Financial Instruments and Exchange Act by 2026. These changes could be presented to Japan’s parliament as early as 2026. Expert groups are currently reviewing the details behind closed doors. The new classification would treat cryptocurrencies differently from traditional securities, placing them in a separate category from stocks and bonds. This approach recognizes the unique characteristics of digital assets.

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 is not clear how these laws would apply to overseas entities. The FSA has not revealed all the details yet, and 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. 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 other regions, which have approved crypto ETFs for trading.

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, 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. The FSA’s initiative to reclassify cryptocurrencies as financial products is a significant step towards enhancing regulatory oversight and protecting investors in the rapidly evolving digital asset landscape.