Japan to Introduce Rules Against Insider Trading in Cryptocurrency

Japan plans to strengthen financial regulations to curb insider trading in the cryptocurrency market. Its Financial Services Agency (FSA) and Securities and Exchange Surveillance Commission (SESC) intend to introduce rules that would make trading cryptocurrencies based on non-public information illegal, aiming to ensure fairer practices and boost confidence in digital asset markets.

New Rules to Curb Insider Trading in Cryptocurrencies

So far, Japan’s Financial Instruments and Exchange Act (FIEA) has not applied to insider trading in cryptocurrencies. As a result, trades based on non-public information were not clearly regulated. According to Nikkei, upcoming regulations will bring cryptocurrencies under the FIEA, closing this gap and strengthening market oversight.

Under the forthcoming regulations, the SESC will be authorized to investigate suspected insider trading in crypto. It will also have the power to recommend fines or refer cases for criminal prosecution when undisclosed information has been used for trading.

Granting SESC greater authority is intended to strengthen oversight and ensure trading is conducted fairly. At present, most supervision is carried out by cryptocurrency exchanges and the Japan Virtual and Crypto Assets Exchange Association, but regulators have raised concerns that this system does not fully monitor transactions. The reform is expected to boost confidence in Japan’s cryptocurrency market and enhance its credibility for investors.

The FSA plans to discuss the details of the new framework in a working group before the end of the year. After these discussions, the agency will submit proposed amendments to the FIEA in the regular parliamentary session next year. The process will first establish that trading cryptocurrencies with undisclosed information is prohibited and then outline the specific types of actions covered by the rules.

Growing Crypto Market Drives Regulatory Shift

This regulatory update comes as cryptocurrency usage in Japan continues to grow rapidly. As of August, the country recorded 7.88 million active accounts, roughly four times the number recorded five years ago. Despite this growth, Japan still has limited experience addressing insider trading in the crypto market.

Initially, cryptocurrencies in Japan were governed by the Payment Services Act, as they were mainly intended for payment purposes. With their use increasingly focused on investment activities, regulatory responsibility is now shifting to the FIEA, which prioritizes protecting investors and ensuring transparency in the market.

Instances of Insider Trading in Cryptocurrencies

Cases of insider trading in cryptocurrency have occurred internationally and in digital marketplaces. In 2021, OpenSea introduced policies banning insider trading after an executive purchased digital artworks shortly before they were featured on the platform’s main page. The executive had prior knowledge of which items would be displayed, giving them an advantage.

Similarly, in July 2022, U.S. authorities charged Coinbase manager Ishan Wahi, his brother Nikhil, and associate Sameer Ramani with insider trading. From mid-2021 to early 2022, Ishan shared advance information about upcoming token listings, enabling the group to trade 55 cryptocurrencies before public announcements and earn about $1.5 million. Following their convictions, Nikhil was sentenced to 10 months in prison, Ramani was fined over $1.6 million, and Ishan received a two-year prison sentence after admitting guilt.