Japan’s financial regulators are moving ahead with plans to tighten insider trading laws, including extending them to cover cryptocurrency assets. The Financial Services Agency (FSA) is preparing to propose amendments to the Financial Instruments and Exchange Act (FIEA). If passed, the changes will make it illegal to trade crypto based on undisclosed sensitive information, bringing digital assets more in line with stocks, bonds and other traditional financial products.
According to reports, the legislation could be submitted to Japan’s Diet (parliament) as early as 2026.
Key Proposals Under Consideration
Here are the major elements that seem to be in the works:
- Legal status for crypto: Reclassifying many cryptocurrencies as financial products under FIEA so that insider-trading provisions automatically apply.
- Regulator powers: The Securities and Exchange Surveillance Commission (SESC) would gain authority to investigate crypto trades suspected of leveraging undisclosed information. Enforcement could include fines, surcharges, and possibly criminal referrals in serious cases.
- Clarification of “insider” definition: One challenge is defining who counts as an insider in a crypto context (issuers, exchange staff, developers, etc.). Japan seems to be working to clarify this in the proposed amendment.
- Timeline: Working groups are active, and the draft amendment is expected by 2025/early 2026.
Why This Matters
- Closing regulatory gaps: Currently many crypto assets aren’t covered under insider trading rules. If someone gets advanced, non-public info about a token listing, protocol vulnerability, or exchange decision, there’s often no legal restriction. The new rules aim to change that.
- Investor confidence & market integrity: Expanding rules to crypto helps signal to both domestic and international investors that Japan takes fairness and oversight seriously in emerging asset classes.
- Harmonization of oversight: Treating crypto more like other securities makes regulatory tools consistent across asset classes — enforcement, penalties, disclosure requirements become more predictable.
- Precedent for other jurisdictions: Japan’s move may encourage or pressure other countries to adopt similar reforms around crypto insider trading.
Risks, Challenges & Points to Watch
- Definition issues: Who’s an insider in crypto? Developers, exchange staff, governance token holders, etc. It may be tricky to clearly define boundaries.
- Enforcement difficulty: Crypto markets often operate with less transparency, cross-border trading, pseudonymity, and fragmented exchanges. Investigations might be complex.
- Pushback from industry: Crypto firms may resist increased regulation, arguing about innovation, speed of listing, or privacy.
- Balancing innovation vs regulation: Tight rules are needed, but overregulation might stifle new projects or discourage investment. Finding the right balance is key.
- Technical implementation: The proposed amendments will require details: thresholds (how much non-public info misuse triggers violation), how to monitor crypto transactions, cooperation with exchanges, etc.
Recent Related Incidents Triggering This
Several insider trading cases in Japan’s traditional markets seem to have pushed this regulatory urgency:
- A former Sumitomo Mitsui Trust Bank official was convicted for insider trading based on tender-offer information. Nippon
- A Tokyo Stock Exchange (TSE) employee is under investigation for allegedly supplying undisclosed inside information to a relative.
- Executives at the Japan Exchange Group (JPX) saw pay penalties following a high-profile insider trading case tied to a former TSE employee.
These incidents highlight that insider trading remains a live concern even outside crypto, making the regulatory push more understandable.
