Defining cryptocurrencies as financial products? Japan considers new crypto regulations and strict oversight.

Japan's Financial Services Agency (FSA) is reportedly considering classifying crypto assets as "financial products" under the country's Financial Instruments and Exchange Act. If successful, this would be a historic event.

According to local media reports, the FSA is considering regulations that would redefine cryptocurrencies as "financial products subject to insider trading rules" and lower the tax rate on their investment returns.

This regulation would apply to the 105 existing cryptocurrencies in Japan, such as Bitcoin, Ethereum, and a wide range of altcoins.

Potential New Crypto Regulations

If crypto assets are classified as financial products, exchanges would be required to disclose whether each asset has a clearly identifiable issuer, the technical specifications of the underlying blockchain, and the volatility characteristics of the token, just like traditional securities. Currently, crypto assets have never been required to disclose this information.

Reports indicate that the FSA is indeed considering requiring trading platforms to strengthen their disclosure obligations, clearly explaining the price volatility risks, liquidity issues, and other information that may affect investment decisions, in order to reduce information asymmetry in the market and improve investor protection.

In addition to requiring trading platforms to provide risk information, the FSA also plans to broaden the scope of participation for financial institutions.

Under the new regulations, banks and insurance companies will be allowed to sell cryptocurrencies to depositors and insurance holders through their securities subsidiaries, enabling the traditional financial industry to further integrate with the crypto market within a compliant framework and promoting market mainstreaming.

Simultaneously, tax reform is also a key aspect of these crypto regulations. Profits earned through cryptocurrency trading will reportedly be taxed at a 20% rate, the same as stock trading, while the current rate can reach as high as 55%. This will help reduce the tax burden on retail investors and investment institutions and enhance Japan's competitiveness in the regional crypto market.

According to local media reports, Japan's Financial Services Agency hopes to pass relevant legislation at next year's regular parliamentary session, laying the foundation for one of the world's strictest and clearest cryptocurrency regulatory systems.

Another Development

It is worth noting that amidst the growing calls for stronger cryptocurrency regulation, another development is noteworthy: Japan is currently exploring allowing banks to acquire and hold Bitcoin and other digital assets for investment purposes, although this is still in the early stages of discussion.

Under current regulations, banks are effectively prohibited from holding cryptocurrencies due to strict capital and risk management requirements. However, growing interest from institutional investors and changes in the global regulatory environment have prompted Japan's Financial Services Agency (FSA) to re-examine these restrictions.

Currently, the agency is exploring whether banking groups should be allowed to directly register as licensed cryptocurrency exchanges, enabling them to offer trading, custody, and other digital asset services independently. If approved, this would be a significant step towards the integration of cryptocurrencies into Japan's mainstream financial system.