Insider trading ban for cryptocurrencies to be legalized, with investor protection being significantly strengthened

A major shift is about to occur in Japan’s financial oversight system. As regulations surrounding the cryptocurrency market shift from viewing digital assets as “payment methods” to “investment targets,” a new framework explicitly banning insider trading has been revealed. This is a significant policy change that will greatly enhance investor protection.

Upgrading Legal Status of Cryptocurrencies, Major Changes in Their Legal Position

Currently, cryptocurrencies like Bitcoin are classified as “payment methods” under the Fund Settlement Law. However, in reality, most transactions are conducted for investment purposes. The Financial Services Agency (FSA) is planning to reclassify cryptocurrencies as “financial instruments” under the Financial Instruments and Exchange Act to correct this discrepancy.

This change will treat cryptocurrencies the same as stocks under the law. In other words, unfair trading based on undisclosed corporate information—insider trading—will be explicitly prohibited. The Securities and Exchange Surveillance Commission (SESC) will oversee monitoring and investigations of regulatory violations, and violators may face penalties such as fines.

According to materials from the FSA working group, “the current framework treating cryptocurrencies as payment methods is far removed from market realities,” indicating that this legal revision is a necessary step to bridge that gap.

New Risks from Rapid Market Growth and the Background for Stricter Regulations

Japan’s cryptocurrency market continues to expand rapidly. By early 2025, the number of active cryptocurrency accounts in Japan reached approximately 7.34 million, a 3.6-fold increase over five years. This rapid growth reflects increasing interest from individual investors in this new asset class.

However, market expansion also raises the risk of investment losses. Reports of scams related to cryptocurrency investments are increasing, highlighting the urgent need for stronger regulatory frameworks. Currently, self-regulation by cryptocurrency exchanges and the Japan Virtual Currency Exchange Association exists, but concerns remain about insufficient monitoring of trading data. In addition to domestic issues, global regulatory trends are also influencing Japan’s approach.

Insider Trading Bans Are an International Trend, Examples from the US and EU

Regulatory movements around cryptocurrencies are no longer limited to Japan. Globally, efforts are underway to establish regulatory frameworks for this asset class.

In the European Union, the Markets in Crypto-Assets Regulation (MiCA) is already being implemented. Meanwhile, the US has prosecuted its first insider trading case involving cryptocurrencies. Specifically, a former employee of major US exchange Coinbase was charged with using insider information about a company’s upcoming listing to conduct illegal trades. Such high-profile violations worldwide have increased awareness of the need to ban insider trading across borders.

The Financial Services Agency (FSA) believes Japan should respond to these international regulatory trends by adopting similar standards. Recognizing cryptocurrencies as serious investment assets and establishing appropriate regulatory frameworks is now an inevitable global trend.

Implementation After 2026: Specific Regulations and Outlook

The FSA plans to submit amendments to the Financial Instruments and Exchange Act during the ordinary Diet session in 2026. These revisions will not only make insider trading involving cryptocurrencies as strictly prohibited as with stocks but also expand the scope of regulation.

Specifically, the prohibition on using undisclosed information for trading will be clarified, and information related to new projects or products held by issuers and exchanges may also become subject to regulation. Additionally, in addition to registered exchanges, entities engaged in soliciting investments may be required to register, with discussions ongoing.

This comprehensive legal reform will mark a major turning point in establishing cryptocurrencies as a new asset class, balancing investor protection with market integrity. Strengthening regulations is expected to improve market trust and create an environment more conducive to participation by institutional and individual investors alike.