.png){kind=logo}
Japan is set to introduce the first crypto-specific regulations targeting insider trading. This move aims to align digital asset rules with the nation's rigorous securities laws. The Financial Services Agency (FSA) and the Securities and Exchange Surveillance Commission (SESC) will spearhead this initiative to enhance transparency and protect investors in Japan's developing cryptocurrency sector.
The FSA will also grant the SESC new powers to investigate suspicious trading activities involving digital assets. According to the suggested structure, the SESC will be able to impose fines based on illicit profits and send severe offenses to criminal prosecution. This will be the first occasion where insider trading in cryptocurrencies will be punishable by the same actions used in Japan's securities markets.
At present, cryptocurrencies are not subject to the Financial Instruments and Exchange Act (FIEA). This has introduced a loophole in the law that restricts the fight against illegal crypto trading. The new law will address this loophole, as the digital assets will be treated as conventional financial instruments. Nikkei Asia also notes that later in 2025, the FSA plans to finalize the structure and formally introduce a new amendment to the FIEA, which is expected to be approved by parliament in 2026.
Currently, crypto-specific regulations are primarily left to the Japan Virtual and Crypto Assets Exchange Association (JVCEA), which serves as a self-regulator. However, there is a concern that there is no well-established system for detecting suspicious trades. The empowerment of the SESC will likely enhance enforcement and foster trust among people in the Japanese crypto market.
Determining who is considered an insider remains a significant issue for regulators. A substantial number of cryptocurrencies utilize a decentralized network that has no central issuer, making it difficult to track individuals who have access to non-public information. To overcome this problem, the FSA shall establish an operating committee to identify activities that constitute insider trading.
Some possible examples include trading tokens prior to a public exchange listing or engaging in actions based on information about unannounced vulnerabilities in a blockchain network. SESC seeks to establish clear investigation procedures to promote fair enforcement. Achieving closer coordination with local exchanges and improving data-sharing systems will be essential during the regulatory rollout process.
Also Read: PayPay and Binance Japan Form Capital and Business Alliance
The move by Japan comes at a time of tremendous growth in the adoption of cryptocurrencies. Local crypto users have grown by approximately 6.3% of the population, with 7.88 million users presently, compared to under 2 million five years ago. The number may rise to 19 million by the end of the year as more institutions and retailers become interested.
The political momentum also supports this shift. Sanae Takaichi, who is expected to become Japan's next Prime Minister, has supported digital innovation with a focus on strict regulations and investor protection. Her government should take a balanced approach that allows blockchain development within a stable regulatory framework.
The criminalization of crypto insider trading in Japan indicates the country's aim to establish an open, fair, and trustworthy digital asset market that aligns with international financial standards.
