- •FSA and SESC propose strict oversight of crypto trades in Japan.
- •Insider trading in digital assets is becoming a criminal offence.
Japan is preparing to ban insider trading in digital currencies through new regulations that will incorporate protections similar to those used for traditional markets. The Financial Services Agency and Securities Exchange Surveillance Commission have proposed reforms to increase scrutiny of cryptocurrency transactions nationally. The expectation is to submit these legislation changes to parliament and, once passed, they will represent a significant change in how Japan regulates trading in digital assets.
New Framework Targets Market Manipulation
The proposed measure will deem the act of trading cryptocurrencies while possessing non-public valuation information a criminal offence punishable by sanctions or prosecution.
Some examples of these situations are purchasing tokens prior to the public announcement of their listing on an exchange or using the knowledge of unreported material vulnerabilities to gain profit. The Securities Exchange Surveillance Commission will be vested with the authority to conduct investigations to determine any violations and issue financial penalties against individuals profiting from insider trading.
Japanese officials want to regain trust in the country’s expanding cryptocurrency markets in which the trading activity has surged among institutional participants. The Financial Services Agency will set up a working group before the end of the year to establish a concrete list of actions that would be classified as insider trading. Crypto exchanges will operate under required guidelines that are designed to mitigate and prevent such misconduct and protect investors from misbehaviour in trading across crypto platforms.
Japan has seen quite a bit of growth in the cryptocurrency arena, with about 7.8 million active trading accounts in August this year. That is nearly four times as many as five years ago, showing a sharp rise in the adoption of digital assets by Japanese traders and investors. Right now, supervision is on exchanges and voluntary guidelines by the Japan Virtual and Crypto Assets Exchange Association, which rely on self-regulation by the industry.
The regulatory reform will move supervision of crypto assets from the Payment Services Act to a framework in the Financial Instruments and Exchange Act. This reclassification brings Japan in line with regulatory efforts around the globe and classifies digital currencies with traditional securities with full investor protection measures. It is part of broader global efforts to develop transparent and credible cryptocurrency markets subject to evolving standards for financial regulation.