Japan’s financial regulators are preparing to explicitly ban insider trading in cryptocurrencies, aiming to align the digital asset sector with stringent rules governing traditional stock markets.
The Financial Services Agency (FSA) plans to introduce legislative amendments to the Financial Instruments and Exchange Act (FIEA), which currently does not cover cryptocurrencies for insider trading.
Under the proposed rules, the Securities and Exchange Surveillance Commission (SESC) would gain authority to investigate suspicious transactions, impose fines proportional to illicit gains, and recommend criminal prosecutions.
This initiative marks a significant shift from the current reliance on self-regulation by crypto exchanges and the Japanese Virtual and Crypto Asset Exchange Association (JVCEA), which lacks a robust system for transaction monitoring.
The move is primarily driven by the rapid expansion of Japan’s cryptocurrency market and the necessity for stronger regulatory oversight. Active crypto users in the country have quadrupled over the past five years, reaching 7.88 million in August, representing approximately 6.3% of the population.
Estimates suggest that by May 2025, around 12.41 million Japanese adults will hold cryptocurrencies, with projections indicating this number could rise to 19.43 million by the end of the year.
The FSA intends to first include an explicit prohibition of undisclosed or privileged information trading in the FIEA. This will be followed by detailed guidelines from the agency on specific forbidden conduct, such as trading based on prior knowledge of exchange listings or unpublicized security vulnerabilities.
However, regulators face unique challenges in defining who qualifies as an “insider” for many tokens that lack identifiable issuers, a contrast to traditional securities where corporate events are clearly regulated.
Japan has limited prior experience with insider trading cases in the digital asset market. The reform is inspired by regulatory models in the European Union and South Korea, alongside recommendations from the International Organization of Securities Commissions (IOSCO) in 2023.
The FSA expects to finalize the regulatory details through a working group by the end of this year. The amendments are slated for submission to parliament during its ordinary session in 2026.
This regulatory push aligns with a broader trend of convergence between traditional finance and cryptocurrencies, evidenced by recent alliances such as Binance Japan’s partnership with PayPay. The measure is expected to attract more institutional investment and foster a fairer environment for all market participants.