Japan's FSA to Reclassify Cryptocurrencies as Financial Products

Japan's Financial Services Agency (FSA) plans to reclassify cryptocurrencies as financial products under new regulations aimed at curbing insider trading within the digital asset market, according to a Nikkei report on Sunday. This move is part of a broader initiative to strengthen oversight of Japan's rapidly growing cryptocurrency sector, which has seen an increase in fraudulent activities alongside rising adoption.

The FSA intends to submit amendments to the Financial Instruments and Exchange Act (FIEA) to Japan's parliament by 2026, following an expert review. Currently, cryptocurrencies are categorized as a "means of settlement" under the Payment Services Act, primarily treating them as payment tools instead of investment vehicles. This classification has left gaps in regulatory control, particularly around issues like insider trading.

The planned reclassification will allow for more stringent oversight, targeting specific activities like insider trading, which has been a concern in the crypto market. However, the exact details of the insider trading rules, including definitions of insider information and penalties for violations, are yet to be disclosed. These aspects will be further clarified as the proposal progresses through the legislative process.

This reclassification represents a significant step towards improving Japan's regulatory framework for digital assets, aligning it more closely with international standards and addressing emerging challenges in the cryptocurrency market.