Japanese Senate Passes Amendment to Financial Instruments and Exchange Act, Classifying Crypto Assets as Financial Products

The Japanese Senate has passed an amendment to the Financial Instruments and Exchange Act and the Fund Settlement Act, redefining crypto assets as financial products. The revisions include: renaming crypto asset exchange operators to crypto asset trading operators, increasing the maximum prison sentence for unregistered sales from 3 years to 10 years, and raising fines from 3 million yen to 10 million yen; introducing regulations against insider trading in crypto assets for the first time, prohibiting trading based on undisclosed important information; requiring specific crypto asset issuers to disclose information regularly every year. In terms of taxation, the maximum comprehensive tax rate of 55% will be changed to a separate declaration tax rate (approximately 20%), allowing losses to be carried forward for 3 years, with implementation expected on January 1, 2028. The bill provides a regulatory framework for the establishment of crypto asset ETFs, with the Japan Exchange Group planning to promote ETF listings by 2027. Following the passage of the bill, attention will shift to the formulation of government ordinances and supervisory guidelines, including reserve levels and derivatives leverage limits. Compliance costs may pose pressure on small and medium-sized exchanges, but opportunities for asset management companies and banking insurance institutions will expand.