Japanese regulators are looking to tighten regulations in a bid to ban insider trading within the cryptocurrency sector.
Japan’s Financial Services Agency will introduce a set of legislative amendments aimed at curbing unfair trading practices in digital asset markets, an Oct. 15 report from Nikkei claimed.
The proposed changes will be presented to the national parliament next year, which will mark the first time insider trading involving cryptocurrencies will be formally addressed under Japan’s Financial Instruments and Exchange Act.
Under the upcoming framework, the Securities and Exchange Surveillance Commission will be granted more authority to investigate trades suspected of being based on non-public information.
In such cases, the SESC will be able to recommend financial penalties proportionate to the profits made or even initiate criminal referrals.
The FSA plans to define a clear list of activities that would fall under this new rule set, such as trading tokens based on knowledge of upcoming exchange listings or undisclosed security vulnerabilities.
Moreover, the regulations would explicitly prohibit using confidential information to profit from crypto trades, much like existing restrictions for traditional financial assets.
The FSA is also expected to convene a working group by the end of the year to finalise the operational details and issue guidelines that will serve as the basis for enforcement once the new rules are adopted.
As per the report, these amendments are being introduced to bring crypto under the same regulatory umbrella as stocks and bonds.
At present, insider trading rules in Japan do not apply to cryptocurrencies.
Instead, digital assets are regulated under the Payment Services Act, which was designed primarily with payment functions in mind rather than investment use cases.
This has left a notable gap in oversight, particularly as more individuals and institutions begin treating crypto as an investment vehicle.
Up until now, enforcement agencies in Japan had to rely on self-regulation by monitoring the sector through crypto exchanges and the Japan Virtual and Crypto Assets Exchange Association.
According to industry participants, this approach lacks the teeth needed to deter manipulation.
However, identifying insider trading in the crypto sector presents unique challenges.
Unlike stocks, where issuers and company insiders are clearly defined, many crypto projects operate with a decentralised structure and no formal issuer, making it difficult to determine who qualifies as an insider and what exactly constitutes sensitive information.
Regulators will likely face a steep learning curve when trying to differentiate between legal market activity and illicit conduct in the space.
Japan focuses on crypto regulations and stablecoins
That said, Japan has already begun moving towards a more structured approach to digital asset oversight.
Over the past years, the FSA has implemented a range of policies to improve the integrity of the sector, including stricter licensing requirements for exchanges, capital requirements, and mandatory security standards.
Among other initiatives, Japan is pushing for the launch of its first official yen-pegged stablecoin to challenge the dominance of dollar-pegged alternatives.
The initiative, led by Tokyo-based fintech firm JPYC, was announced after the FSA reclassified stablecoins as currency-denominated assets and paved the way for regulated entities to issue them.
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