Japan plans to strengthen its financial regulations to combat insider trading in the cryptocurrency market. The Financial Services Agency (FSA) and the Financial Instruments and Exchange Supervisory Commission (SESC) intend to introduce new rules making it illegal to trade cryptocurrencies based on non-public information. The aim is to ensure fairer practices and build trust in digital asset markets.
In brief
- Japan plans to strengthen financial regulations to prevent insider trading in the cryptocurrency sector.
- Cryptocurrencies will be integrated into the Financial Instruments and Exchanges Act (FIEA) to fill current gaps.
New rules to combat insider trading in cryptocurrencies
Until now, Japan's Financial Instruments and Exchange Act (FIEA) did not apply to insider trading in cryptocurrencies. Consequently, transactions based on confidential information were not clearly regulated. According to Nikkei, the upcoming reform will now bring cryptocurrencies within the scope of the FIEA, thereby closing this legal gap and strengthening market surveillance.
According to the new upcoming regulations, the SESC will be empowered to investigate suspected insider trading related to cryptocurrencies. It will also have the power to recommend fines or transmit the files to the courts when non-public information has been used for trading purposes.
Strengthening the powers of the SESC aims to improve market supervision and ensure fair trade. Until now, monitoring has mainly relied on exchange platforms and the Japan Association of Virtual Exchanges and Cryptoassets. However, regulators have expressed concerns about the effectiveness of this model, considered insufficient to ensure complete supervision of transactions. The reform should therefore strengthen confidence in the Japanese cryptocurrency market and increase its credibility among investors.
The FSA plans to discuss details of the new framework in a working group before the end of the year. At the end of these discussions, it will submit proposed amendments to the FIEA during the regular parliamentary session next year. The process will begin by explicitly banning cryptocurrency trading based on undisclosed information, before specifying the types of actions covered by these new rules.
A growing market pushes for regulatory reorientation
This regulatory update comes as the use of cryptocurrencies in Japan continues to grow. As of August, the country had 7.88 million active accounts — almost four times more than five years ago. Despite this expansion, Japan still remains inexperienced in handling cases of insider trading in the cryptocurrency market.
Originally, cryptocurrencies fell under the Payment Services Act, since they were primarily used as a means of payment. Now used more as investment assets, they gradually come under the FIEA, a law which favors the protection of investors and the transparency of financial markets.
Notable cases of insider trading in cryptocurrencies
Insider trading cases have already been observed internationally, particularly on certain digital platforms. In 2021, OpenSea adopted policies prohibiting this practice after an executive purchases digital works just before they are featured on the homepage. Having knowledge of future selections, he benefited from an unfair advantage.
Similarly, in July 2022, US authorities indicted Coinbase director Ishan Wahi, his brother Nikhil and their accomplice Sameer Ramani for insider trading. Between mid-2021 and early 2022, Ishan allegedly transmitted confidential information to his relatives about upcoming token listings, allowing them to trade 55 cryptocurrencies before the public announcements and pocket around $1.5 million. Following the trial, Nikhil was sentenced to ten months in prison, Ramani was fined more than $1.6 million, and Ishan was sentenced to two years in prison after pleading guilty.
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