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Japan’s lower house of parliament has advanced a bill that would reclassify certain digital assets as financial instruments, bringing the country closer to a full regulatory framework for digital assets.
On June 10, according to parliament records, Japan’s House of Representatives’ Finance and Financial Affairs Committee progressed legislation that would move digital asset regulation from its current position under the Payment Services Act (PSA) to be governed by the Financial Instruments and Exchange Act (FIEA), which is the regulatory framework for securities markets, issuance, trading, and disclosures.
The bill, which Prime Minister Sanae Takaichi’s Cabinet initially approved in April, now goes to Japan’s upper House of Parliament—the House of Councilors—and if approved, is expected to take effect next year.
The change is the result of an extensive review of how Japan regulates digital assets, conducted by the Financial System Council (FSC), the key consultative body that informs and guides Japan’s finance policy, from June to December 2025, which culminated in the Financial Services Agency (FSA)—Japan’s top financial regulator—releasing a report on December 10 that recommended the reclassification.
The FSA was persuaded to shift its view on which of the country’s regulatory frameworks was most suitable for digital assets, given their increasing use for investment purposes rather than just as a means of digital payment.
However, based on the FSA’s December proposals, non-fungible tokens (NFTs) and stablecoins would not be among the digital assets to be reclassified as financial instruments; the former because they’re associated with the provision of some goods or services, the latter because they have the potential to be widely used for remittance and payment purposes.
In practical terms, the change means that, should the bill pass the upper house, those digital assets classified as financial instruments and digital asset service providers would be subject to stricter, securities-style regulations compared to the PSA, which is a regulatory regime focused on licensing, conduct, and user protection.
The FIEA establishes various business regulations governing mediation, intermediation, investment management, and investment advice related to the buying and selling of securities, as well as requiring the proper management of assets entrusted to customers.
The new requirements placed on digital asset service providers would include providing pre-sale disclosures with detailed information about the core entities behind the offering, conducting code audits by independent third-party experts, and imposing more rigorous licensing, capital, and compliance requirements.
Issuers of digital assets deemed financial instruments would also need to disclose their identities, regardless of whether the project is decentralized.
“The FIEA is based on the concept of building a comprehensive investor protection framework covering a wide range of highly investment-oriented financial products,” said the FSA, when it released its recommendations last December. “The fact that many crypto asset transactions are conducted with the expectation of returns from price fluctuations aligns with the investment-oriented consideration of financial products that were discussed when the FIEA was enacted.”
The updated FIEA will also reportedly strengthen penalties for non-compliance or misconduct, with prison sentences for unregistered sellers being increased from up to three years to up to 10 years, and fines raised from the current up to JPY 3 million ($18,801) to up to JPY 10 million ($62,672).
With government and lower house approval already secured, the updated legislation is highly likely to pass the upper house unscathed, thus digital asset firms in Japan should begin preparing for the new regime to take effect in 2027.
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