"Cryptocurrency as a Legal Financial Product"... Japan Pushes Insider Trading Regulations

Financial Services Agency, Pushes for Amendment of Financial Instruments and Exchange Act

Defined as a Financial Product Separate from Securities

Prohibition of Trading Using Non-Public Insider Information

The Japanese government is pushing for legislation to recognize cryptocurrency as a legal financial product. This is to prohibit trading based on non-public insider information.

According to the Nihon Keizai Shimbun on the 31st, the Financial Services Agency of Japan plans to amend the Financial Instruments and Exchange Act to introduce insider trading regulations for cryptocurrency. They plan to refine the details this summer and submit the revised bill to the parliament next year. Nihon Keizai reported, "Since cryptocurrency is mainly traded for investment purposes, the law is being prepared to prevent unfair trading."

Cryptocurrency, represented by Bitcoin, was initially expected to be used as a means of payment, so it is defined as a means of payment under the Payment Services Act in Japan. Stocks and bonds are defined as securities under the Financial Instruments and Exchange Act, but the law is being amended to define cryptocurrency as a financial product separate from securities.

As of January, there were approximately 7.34 million cryptocurrency trading accounts in Japan, about 3.6 times more than five years ago. Nihon Keizai explained, "As services that allow easy trading via smartphones increase, the base for trading and holding is expanding."

Insider trading regulations are defined in the Financial Instruments and Exchange Act. The law is being amended to include cryptocurrency trading as a target. It is likely to target cases where a person with knowledge of new business information from issuers or exchange operators trades before it is announced.

Previously, the Markets in Crypto-Assets (MiCA) regulation was implemented in the European Union (EU), making insider trading a target of regulation. In the United States, there was a case where an employee of a major exchange was caught by the Securities and Exchange Commission (SEC) for passing confidential information about the start of handling new cryptocurrency to an acquaintance.

The amendment requires issuers and exchange operators to disclose information necessary for investor judgment. Although not as strict as securities, it is expected to impose disclosure obligations on corporate and trading information. If defined as an investment target under the Financial Instruments and Exchange Act, not only exchange operators but also those soliciting investments need to register.

Many related businesses, including cryptocurrency issuers, are overseas operators. The Financial Services Agency plans to strengthen regulations regardless of the company's location, but how to ensure effectiveness remains a challenge. Cryptocurrencies range from Bitcoin to highly speculative meme coins, and how to narrow down the regulatory targets will be reviewed in the future.

If cryptocurrency is established as a legal investment target, discussions on tax reform will also be necessary. Currently, cryptocurrency trading in Japan is subject to comprehensive taxation, with a maximum tax rate of 55% on capital gains. The Financial Services Agency plans to demand separate taxation for cryptocurrency in the 2026 tax amendment to be submitted this summer.

Tokyo = Il-kyu Kim, Correspondent black0419@hankyung.com