Insider trading ban in cryptocurrency transactions, Financial Services Agency to implement a major regulatory overhaul

Japan’s cryptocurrency market is entering a major turning point. The Financial Services Agency plans to submit an amendment to the Financial Instruments and Exchange Act in the 2026 regular session of the National Diet, clearly classifying cryptocurrencies as financial products. This move is a key measure to prohibit unfair trading practices, including insider trading, and significantly strengthen investor protection.

Growing Investor Protection Needs Amid Rapid Market Expansion

The cryptocurrency market is rapidly expanding within Japan. As of January 2025, the number of active cryptocurrency accounts reached approximately 7.34 million, a 3.6-fold increase compared to five years ago. With the surge in market participants, there have been numerous consultations about fraudulent investment solicitations and opaque trading practices. Under the current Payment Services Act, the regulatory framework is struggling to keep up with the actual market conditions.

Classifying Cryptocurrencies as “Financial Instruments” and Clarifying Insider Trading to Establish Market Order

The working group of the Financial Services Agency points out that cryptocurrencies are functioning not just as a means of payment but mainly as investment assets. Based on this understanding, they have indicated a plan to reclassify cryptocurrencies like Bitcoin (BTC) from the current Payment Services Act to financial instruments under the Financial Instruments and Exchange Act.

If the law is amended, insider trading in cryptocurrency transactions will be explicitly prohibited, similar to stock markets. Unfair trading based on undisclosed information such as plans for new listings or new service launches by issuers or exchanges will be considered violations. The Financial Services Agency’s Securities and Exchange Surveillance Commission (SESC) will oversee monitoring and investigations, and administrative sanctions such as fines will be enforced when violations are confirmed.

Aligning with International Regulatory Trends

This regulatory strengthening is part of a global trend, not just a Japan-specific initiative. The European Union has already advanced regulations for the crypto asset market, and in the United States, former Coinbase employees have been charged with insider trading, among other developments. More countries are establishing strict regulatory frameworks that treat cryptocurrencies as investment assets.

Japanese regulatory authorities also reference these international trends in their materials, emphasizing the importance of aligning Japan’s regulatory environment with global standards. Additionally, discussions are underway to require registration not only for cryptocurrency exchanges but also for businesses soliciting investments, suggesting an expansion of the regulatory scope across the entire market.

Implementation of the Law and Future Market Outlook

The Financial Services Agency has indicated that it will conclude discussions within the working group by the end of 2025 and submit the amendment bill to the 2026 regular session of the Diet. The detailed contents of the regulation will be clarified further through market stakeholders’ input and parliamentary deliberations.

This legislative reform is regarded as a major turning point that will establish cryptocurrencies as a new asset class legally, while simultaneously enhancing market transparency and investor protection. With the enforcement of new regulations, including the prohibition of insider trading, it is expected that the cryptocurrency market will develop into a healthier and more trustworthy environment.