Japan's Lower House Passes Bill to Reclassify Crypto Under Securities Law
Japan's parliament took a decisive step on June 11, 2026, moving cryptocurrencies out of its payment services framework and into its securities law, with a tax overhaul that cuts the top rate on crypto gains from 55% to a flat 20%.
The country's House of Representatives passed an amendment to the Financial Instruments and Exchange Act (FIEA), the law that currently governs stocks and securities. The bill now moves to the upper house, the House of Councillors. If approved there, most provisions are expected to take effect in fiscal year 2027, with crypto exchange-traded products and certain tax rules following in 2028. The Cabinet had approved the draft amendment on April 10, 2026, after Japan's Financial Services Agency (FSA) published a working group report underpinning the reform in December 2025.
Why the Reclassification
Japan has regulated crypto exchanges since 2017, making it one of the earliest countries to formally license the industry after the Mt. Gox exchange collapse. But the existing framework, the Payment Services Act (PSA), was designed for payment utilities. The FSA acknowledged what the market had long reflected: the majority of domestic crypto transactions are investment-driven, not payments-related. The FIEA provides tools the PSA does not, including mandatory disclosure, investor protection mechanisms, and market conduct rules.
The amendment covers approximately 105 approved crypto assets, including Bitcoin and Ethereum. Under the new framework, crypto issuers will be required to file annual reports covering asset type, underlying blockchain technology, volatility, material risks, and issuer details. Insider trading will be explicitly banned, with restrictions targeting three classes of actors: issuer insiders, exchange employees with advance knowledge of listings, and major buyers holding more than 20% of any asset. Penalties for violations increase sharply. Unlicensed operators face prison terms rising from three years to ten years, and fines increasing from 3 million yen to 10 million yen (roughly $62,800). The reform also updates official industry terminology, reclassifying what were known as "crypto asset exchange businesses" as "crypto asset trading businesses" under the FIEA, a naming shift that signals how regulators now conceptualise the sector's primary function.
Asset custody rules also tighten. Customer funds must be held in trust-based accounts rather than simple bank account separation. The framework imposes a near-total cold wallet requirement: hot wallets, which are connected to the internet and more vulnerable to hacks, are capped at a ceiling of 5% of customer assets, with the remainder required to be held in offline cold storage.
Financial Services Minister Satsuki Katayama framed the bill's purpose plainly, saying when the Cabinet approved the draft in April: "We will expand the supply of growth capital in response to changes in financial and capital markets, and ensure fairness and transparency in the market and investor protection."
Market Backdrop
Japan currently has more than 12 million verified crypto users and approximately $34 billion in assets under domestic custody, spread across more than 30 licensed exchanges. Bitcoin accounts for roughly 45 to 50% of domestic trading volume, with daily domestic BTC volume exceeding $800 million. The country's crypto exchange market was valued at $3.66 billion in 2025 and is projected to reach $28 billion by 2034.
Not everyone in the industry is celebrating. With roughly 90% of domestic exchanges currently operating at a loss, industry representatives have warned that the new compliance requirements could be too heavy-handed. Operators will need to notify regulators within two weeks of enactment, provide full token information within three months, and file complete FIEA registration within six months, with a two-year outer limit for full compliance. Mandatory CPA-certified audits and cold wallet infrastructure upgrades add further cost pressure, which could accelerate consolidation among smaller platforms.
For larger institutions, the picture is different. Banks and financial institutions will gain legal clarity to offer spot crypto investment products. A new "Crypto Asset Management Related Business" category opens legal space for third-party wallet providers and system vendors. SBI Holdings and Nomura Holdings are already developing crypto-linked exchange-traded products ahead of the expected 2028 ETF pathway.
Regional Signals
Japan's shift carries weight across Asia and beyond. In South Asia, India still lacks a comprehensive crypto law and applies a 30% flat tax on gains with no loss offsets, a rate significantly above Japan's proposed 20%. Japan's investor-protection model, which combines a lower flat tax with loss carryforward provisions and securities-style disclosure, offers a policy reference point that Indian policymakers could draw on. That pressure is not merely theoretical: an Orissa High Court case ongoing in 2026 has demanded that the Indian government clarify crypto's legal status, adding concrete urgency to the legislative gap. Pakistan moved ahead of India in March 2026, passing its Virtual Assets Act and establishing the Pakistan Virtual Assets Regulatory Authority (PVARA), covering an estimated 40 million crypto users. The legislation was signed by President Asif Ali Zardari.
Across Africa, where crypto adoption grew 52% in 2025, Nigeria's VASP Regulation Bill advanced to its second reading in 2026, Kenya passed its VASP Act in late 2025, and South Africa has been advancing CBDC pilot programs and tokenised asset frameworks. For regulators in those markets building frameworks from scratch, Japan's FIEA amendment adds a tested securities-aligned model to the set of templates already provided by the European Union's Markets in Crypto-Assets (MiCA) framework, which came into full force in 2024.
What Comes Next
The House of Councillors vote is the remaining legislative hurdle. Assuming passage, the two-year compliance window means the structural shape of Japan's crypto market will shift through 2027 and 2028, with the potential ETF approval in 2028 representing what analysts project could be the single largest institutional demand driver in the market's history. For a country that pioneered crypto licensing nearly a decade ago, some analysts frame the bill not as a revolution but as a realignment, bringing the legal architecture in line with where the market already is.