Japan has made a sweeping change to its legal framework for crypto assets. The country’s parliament included crypto assets within the scope of the Financial Instruments and Exchange Act with the regulation adopted on Wednesday. Thus, digital assets were moved away from the old payment instrument-oriented approach and moved to a ground closer to traditional finance rules.
What does the new framework change?
Previously, in Japan, crypto assets were mainly considered under the Payment Services Act. The new regulation links the sector more directly with financial market rules. With this change, bans on insider trading were put into effect, while auditing obligations for exchanges and other crypto companies were also increased.
The new rules prohibit issuers, exchanges and other market participants from trading with material information that has not yet been made public. This approach is similar to the insider trading restrictions imposed on stocks and other traditional financial markets.
Mini dictionary: Insider trading means trading based on material information that is not publicly disclosed and that can affect the price. The Financial Instruments and Exchange Act is one of the main legal frameworks regulating securities and market activities in Japan.
Sanctions to be imposed on companies operating without registration have also been made more severe. The maximum prison sentence was increased from 3 years to 10 years. The fine was increased from approximately 3 million yen to 10 million yen. For insider trading violations, imprisonment of up to 5 years, a fine of up to 5 million yen, or both sanctions may be imposed.
The regulation adopted by Japan moves crypto assets from the payment instrument approach to a structure more closely linked to financial market rules.
Industry definition is also changing
The regulation changes not only inspections and sanctions, but also the official definition of the sector. The term “cryptocurrency exchange” used for registered businesses will be replaced by the definition of “crypto asset trading company”. This change indicates that regulators are now assigning a broader financial role to the sector.
Japan has long been among the countries that have stood out in crypto asset regulations. The country was one of the major economies that adopted the licensed stock market model in the early period. The final step highlights the goal of linking user protection and market integrity to a stronger legal framework.
Step in parallel with the global trend
The change in Japan also coincides with global discussions about how to position crypto assets within the current financial system. Regulators in many countries are moving to adapt applicable financial and capital markets rules to crypto assets, rather than treating the sector as a completely separate area.
In this context, the South African tax administration published draft guidance at the beginning of July showing how the current tax rules will apply to crypto assets. Regulatory authorities in the USA continue to explain the limits within which securities and commodity legislation will be applied to digital assets.
The new framework aims to strengthen user protection and market confidence while imposing additional compliance obligations on crypto companies in Japan.
