Japan is planning to include crypto assets under the Financial Instruments and Exchange Act, covering insider trading and information disclosure, with significantly increased penalties for violations; compliance costs will rise, but it's a positive development for institutional entry.

(The FSA) previously regulated cryptocurrency assets under the “Funds Settlement Act,” using payment methods as the basis for supervision. With the continued expansion of cryptocurrency assets’ investment uses, the proportion of users holding such assets for profit has risen significantly, and the current regulatory framework is no longer able to effectively protect investors’ rights and interests. Against this backdrop, the Financial Services Agency decided to shift the regulatory framework to the “Financial Instruments and Exchange Act,” so that, in terms of legal classification, cryptocurrency assets are placed alongside traditional financial products such as stocks and bonds, and relevant industry players will also face compliance standards similar to those of traditional financial institutions. This transition further aligns Japan’s cryptocurrency regulatory framework with the mainstream financial regulations of major G7 economies.

Core provisions of the amendment: stronger obligations and upgraded criminal penalties

Key changes in this amendment include:

- **Insider trading ban:** An explicit prohibition on trading cryptocurrency assets using material non-public information, filling a gap in current law.
- **Annual information disclosure obligation:** Cryptocurrency asset issuers must regularly disclose financial and business information to the competent authorities and investors.
- **Change of industry operator name:** Registered operators will be officially renamed from “cryptocurrency exchange operators” to “cryptocurrency trading operators.”
- **Harsher criminal penalties:** For unlicensed operators, the maximum prison term increases from 3 years to 10 years, and the fine cap increases from 3,000,000 yen to 10,000,000 yen.