Japan's Financial Services Agency (FSA) plans to reclassify cryptocurrencies as financial products

The move comes as part of a broader effort to strengthen oversight in Japan's crypto ecosystem, which has witnessed growing adoption alongside a rise in fraudulent activities.

Japan's Financial Services Agency (FSA) is planning to reclassify cryptocurrencies as financial products in a move that could introduce specific rules against insider trading in the digital asset market, the Nikkei reported on Sunday.

The report follows a broader effort by the FSA to strengthen supervision in Japan's crypto space, which has seen increasing use of digital assets in recent years, but also a rise in fraudulent activities.

The agency intends to submit amendments to the Financial Instruments and Exchange Act (FIEA) to Japan's parliament as early as 2026, following a detailed review conducted by experts behind closed doors.

Currently, cryptocurrencies are categorized as a "means of settlement" under the Payment Services Act, a designation that has governed their use primarily as a payment tool rather than an investment vehicle. This existing classification has left openings in regulatory coverage, especially regarding activities like insider trading.

As part of the proposed changes, the FSA plans to introduce a new category for "digital currency" in the FIEA, aiming to streamline the regulation of crypto assets in a comprehensive manner.

The report noted that the FSA will factor in the recommendations of the Cryptocurrency Economic Impact Taskforce, a government panel that completed its report in June, suggesting ways to promote Japan's competitiveness in the global Web3 space.

The urgency to revamp crypto regulations in Japan stems from the rapid integration of digital assets into the financial market, which has heightened concerns about consumer protection and market integrity.

The FSA's initiative to classify cryptocurrencies as financial products could pave the way for specific insider trading rules to be applied in the crypto context, considering the unique characteristics of the digital asset market.

Specific details about the insider trading rules, such as what constitutes insider information in the crypto domain or the penalties for violations, will be further elaborated as the proposal progresses.