Japan is taking steps to crack down on insider trading within the cryptocurrency market, aligning its regulatory approach more closely with traditional securities. The Financial Services Agency (FSA) and the Securities and Exchange Surveillance Commission (SESC) are spearheading this initiative to tighten oversight of crypto transactions.
The core of the plan involves reclassifying cryptocurrencies under Japanese law, moving them from being a "means of settlement" to regulated financial products. This reclassification, expected to be formalized through an amendment to the Financial Instruments and Exchange Act (FIEA) submitted to Parliament in 2026, would allow the FSA to impose stricter regulations and penalties on insider trading.
Currently, Japan lacks specific insider trading rules within the FIEA that cover crypto assets. The self-regulated Japan Virtual and Crypto Assets Exchange Association (JVCEA) also lacks a robust monitoring system to detect suspicious trading activity, highlighting the need for stronger regulatory oversight.
Under the proposed framework, the SESC would be authorized to investigate suspicious crypto trading activity and impose surcharges on violators based on their illicit gains. More serious cases could result in criminal referrals. The FSA will establish a working group by the end of 2025 to clarify what specific actions would constitute insider trading in the crypto space. Examples of actions that could be targeted include trading tokens before the public announcement of an exchange listing or after discovering an unreported security flaw. The new rules will also mandate that crypto exchanges disclose compliance procedures to prevent abuse.
This move towards sensible crypto regulation follows a significant increase in the number of local crypto users, which has quadrupled to 7.88 million over the last five years, representing about 6.3% of Japan's population. The growing demand for crypto trading among local institutions has further emphasized the need for a more transparent and regulated market.
In addition to addressing insider trading, Japan has been actively developing its crypto regulatory framework since 2016. This includes amendments to the Payment Services Act (PSA) to establish registration requirements for cryptocurrency exchanges. The FSA is also proposing to bring crypto under the same 20% tax bracket as traditional investments and allow investors to carry forward losses for three years. Furthermore, there are discussions about reclassifying certain digital assets, particularly those with investment-like features, under the FIEA, potentially categorizing tokens in the same category as securities.
