# Japan Prepares Groundbreaking Ban on Cryptocurrency Insider Trading

Japan is taking decisive action to address a critical gap in its financial regulatory framework by preparing to ban insider trading in cryptocurrency markets. The country’s top financial watchdog is developing comprehensive new regulations that will bring digital assets under the same legal protections that currently govern traditional securities markets.

## Closing a Major Regulatory Gap

Currently, Japan’s Financial Instruments and Exchange Act does not cover digital assets such as cryptocurrencies, leaving a significant blind spot in market oversight. The Japan Virtual and Crypto Assets Exchange Association, which oversees exchanges through a self-regulatory model, lacks robust systems to detect insider activity. This regulatory vacuum has allowed potentially manipulative trading practices to operate in a legal gray area despite the rapid growth of Japan’s cryptocurrency sector.

The proposed reforms will grant the Securities and Exchange Surveillance Commission expanded powers to investigate suspicious cryptocurrency transactions. The agency will gain authority similar to what it currently exercises in stock market misconduct cases, including the ability to impose fines on offenders and refer severe violations for criminal prosecution. Penalties will be calculated based on the scale of illicit profits, creating a meaningful deterrent against market manipulation.

## A Comprehensive Framework Taking Shape

Japan’s Financial Services Agency, which oversees the Securities and Exchange Surveillance Commission, plans to finalize the regulatory framework by the end of this year. The agency intends to submit proposed amendments to the Financial Instruments and Exchange Act to parliament during the regular session in 2026. This timeline reflects the urgency with which Japanese authorities are approaching cryptocurrency market integrity.

The new regulations will introduce a surcharge system directly tied to gains made through unlawful cryptocurrency trading. Under this framework, the Securities and Exchange Surveillance Commission will be empowered to recommend penalty orders and pursue prosecution for serious violations. The proposed law will explicitly ban cryptocurrency trades that rely on undisclosed or private information, bringing digital assets squarely within the scope of insider trading prohibitions.

## Defining Prohibited Conduct

The Financial Services Agency plans to issue detailed guidelines clarifying what types of behavior will be considered illegal insider trading in cryptocurrency markets. Examples of prohibited activities will likely include trading based on advance knowledge of token listings on exchanges or exploiting information about security vulnerabilities before public disclosure. These specific scenarios address real-world concerns about information asymmetry in cryptocurrency markets.

However, defining insider trading in cryptocurrency presents unique challenges compared to traditional securities. Many cryptocurrencies lack identifiable issuers, making it difficult to determine who qualifies as an insider with access to material non-public information. Japanese regulators have limited experience with cryptocurrency insider trading cases, and even recent European Union cryptocurrency regulations introduced in 2024 do not clearly define what constitutes insider activity in this context.

## Responding to Explosive Market Growth

This regulatory initiative comes amid dramatic expansion in cryptocurrency adoption across Japan. The number of registered cryptocurrency users in the country has increased fourfold over the past five years, reaching approximately 7.88 million people, which represents roughly 6.3 percent of Japan’s population. This rapid growth has heightened concerns about the adequacy of market surveillance and investor protection mechanisms.

The current self-regulatory approach has proven insufficient to monitor trading activity at the level required to detect and prevent manipulation. By transferring oversight responsibility to the Securities and Exchange Surveillance Commission, authorities aim to create a more transparent and equitable trading environment. This enhanced regulatory structure is designed to increase confidence in cryptocurrency as a legitimate investment vehicle for both retail and institutional participants.

## Implications for Market Integrity

The proposed regulations represent a significant step toward formalizing oversight of Japan’s expanding cryptocurrency sector. By extending insider trading prohibitions to digital assets, Japan is aligning its cryptocurrency markets more closely with the regulatory standards applied to traditional financial markets. This approach reflects growing international recognition that cryptocurrency markets require dedicated regulatory frameworks to protect investors and maintain market integrity.

The move toward comprehensive cryptocurrency regulation in Japan signals a broader shift from viewing digital assets primarily as technological innovations to recognizing them as financial instruments requiring appropriate oversight. As cryptocurrency markets mature and attract increasing institutional participation, regulatory clarity around market manipulation and insider trading becomes essential for sustainable growth and investor confidence.