Japan is set to reshape its cryptocurrency market with stricter trading rules, stronger user protections and a framework closer to traditional finance.

The country’s parliament on Wednesday passed revisions that classify crypto assets as financial assets under Japan’s Financial Instruments and Exchange Act (FIEA), according to a report by local news agency Nikkei.

The changes move Japan’s crypto regulation away from the Payment Services Act (PSA), which treated digital assets primarily as payment instruments, and introduce insider trading rules and stronger oversight for crypto businesses.

The overhaul marks one of Japan’s biggest shifts in digital asset policy as regulators worldwide continue debating how crypto should fit within existing financial systems.

Crypto exchanges face tougher oversight

Under the revised framework, crypto businesses operating in Japan will face additional compliance obligations designed to improve market integrity and protect users.

The updated rules prohibit issuers, exchanges and other market participants from trading while aware of undisclosed material information, creating insider trading restrictions similar to those applied in traditional finance (TradFi).

Source: Reuters Legal

The revised rules increase penalties for companies operating without registration, reportedly raising the maximum prison sentence from three years to 10 years and increasing fines from around 3 million Japanese yen ($19,000) to around 10 million yen.

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Insider trading violations could result in penalties of up to five years in prison, fines of up to 5 million yen, or both, the report notes.

Global regulators align crypto with financial rules

In line with Japan’s move to bring crypto closer to TradFi, the revised law also reportedly changes the terminology for registered businesses from “cryptocurrency exchange” to “cryptocurrency trading company.” The change reflects the broader financial role regulators now assign to the sector.

Japan’s crypto regulation developments reflect a broader global trend of regulators applying existing financial frameworks to crypto rather than treating the sector as entirely separate.

South Africa’s tax authority published draft guidance in early July outlining how existing tax rules apply to crypto assets, while US regulators continue clarifying how existing securities and commodities laws apply to digital assets.

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