Japanese financial authorities push to ban insider trading in virtual assets…aim to legislate next year

Nikkei reported on the 15th (local time) that Japanese financial authorities are pushing for measures to ban insider trading in the virtual asset (cryptocurrency) market. The measure would expand insider trading regulations, which previously applied only to existing financial products, to virtual assets, and is expected to be the first case of its kind introduced among major Asian countries.

According to the report, the Securities and Exchange Surveillance Commission (SESC) under the Financial Services Agency (FSA) would be granted the authority to investigate trading based on undisclosed information related to virtual assets. If violations are confirmed, the authorities may recommend the imposition of administrative fines or criminal prosecution.

Under current Japanese law, insider trading regulations apply only to traditional financial products such as stocks and bonds. The FSA is preparing detailed regulations to reclassify virtual assets as a form of financial product and is discussing related legislative amendments with the goal of submitting them to the Diet in 2026.

Nikkei said the authorities plan to first spell out the principle that "trading virtual assets using undisclosed information is prohibited," and then establish specific enforcement standards.

Insider trading is the act of obtaining unfair profits by trading assets using information not disclosed to the public. A representative case is the Coinbase insider trading incident that occurred in the United States in 2022. At the time, product manager Ishan Wahi leaked information about newly listed tokens in advance, and his brother Nikhil Wahi and acquaintance Sameer Ramani bought the tokens before the listing announcement and sold them after they surged to earn profits.

Japan has long been a country with a developed virtual asset industry, and at one time the world's largest Bitcoin exchange, Mt. Gox, was headquartered in Tokyo. However, after it went out of business following a 2014 hacking incident, the Japanese government has continuously refined the regulatory framework to restore trust in and institutionalize the virtual asset market.

This discussion on banning insider trading reflects Japan's recent policy trend of incorporating virtual assets into a regulatory framework at the level of traditional financial markets.