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Japan’s lower house of parliament has passed legislation to reclassify cryptocurrencies as financial instruments under the Financial Instruments and Exchange Act, moving them away from the Payment Services Act. This shift aims to align crypto regulation with the framework used for stocks and bonds, facilitating the potential introduction of crypto-linked exchange-traded funds (ETFs). The bill is expected to move to the upper house, with most provisions taking effect next year, though the associated tax reforms are slated for 2028.
The legislation includes a significant reduction in the capital gains tax rate for crypto assets, lowering the maximum rate from 55% to a flat 20%. To foster a high-trust environment, the bill introduces stricter insider trading prohibitions, enhanced disclosure requirements for project teams, and increased penalties for unregistered operators, including prison terms of up to 10 years. While supporters view these changes as a path toward regulatory clarity and market growth, industry participants note that the increased compliance burden may force smaller exchanges to exit the market.
The legislation reclassifies cryptocurrencies as financial instruments, subjecting them to regulatory standards similar to those of the securities market.
Capital gains tax on crypto assets is set to decrease from a maximum of 55% to a flat 20% starting in 2028.
The bill introduces stricter insider trading laws and increases the maximum prison sentence for operating an unregistered crypto business from three to 10 years.
New disclosure requirements mandate that project teams provide audited financial and technical information, with investment limits for retail investors in unaudited projects capped at 2 million JPY.
The regulatory shift is expected to enable the launch of crypto-linked ETFs in Japan, with the Tokyo Stock Exchange operator suggesting listings could begin as early as next year.
The reduction of the capital gains tax rate to a flat 20% is scheduled to come into effect in 2028.
No, the new law will not apply to stablecoins, which will continue to be regulated under the existing payment services framework.
Industry participants warn that the increased compliance, auditing, and disclosure requirements may be too burdensome for smaller firms, potentially leading to a market consolidation.
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