Japan’s parliament poised to pass sweeping bill to regulate crypto like stocks

Japan could soon treat cryptocurrencies like stocks and other financial investments, rather than just as a payment method.

The country’s House of Representatives passed a bill that shifts crypto regulation from the Payment Services Act to the Financial Instruments and Exchange Act.

The Financial Services Agency (FSA) attributed the move to crypto quickly becoming a more mainstream investment asset in an announcement of the passage of the bill Thursday. Japan now has more than 14 million open crypto accounts, according to data cited by the FSA. Low- to middle-income everyday retail users are driving this growth, with people earning under 7 million yen ($43,600) a year accounting for roughly 70% of those accounts.

The new rules, expected to take effect next year, would classify crypto assets as financial instruments,subjecting them to lower taxes and stricter trading rules. It also opens the door to new products like exchange-traded funds (ETFs). “Crypto-ETFs would provide investors with easy-to-understand ways of investment,” the ruling Liberal Democratic Party said recently.

“Our framework intends to improve user protection while remaining mindful of promoting innovation, given that crypto assets are increasingly positioned as investment targets for both domestic and foreign investors,” the FSA said in the statement.

The FSA said the government is implementing an insider trading ban for crypto that works exactly like the stock market. Company insiders or exchange workers are banned from buying or selling tokens if they know about unpublicized “material facts”. This includes secrets like an exchange planning to add or drop a coin, a company going out of business, or large trades that make up.

The bill creates strict “information public disclosure rules” to stop developers from lying to the public. Projects must post clear details on how their technology works, their supply, and their business finances. If a company raises capital through a token but chooses not to obtain an independent audit from an accounting firm, regular investors will face a strict investment cap of 2 million yen.

The government also is getting much tougher on bad actors. The maximum prison sentence for anyone running an unregistered crypto business will jump from three years to 10 years. The country’s securities watchdog will also get clear powers to conduct criminal investigations and ask courts to freeze funds. Operating without registration could bring up to 10 years in prison, up from three, and fines could increase to 10 million yen ($62,800).