Japan Moves to Criminalize Crypto Insider Trading

The transformation of the legal framework

Japan’s Financial Services Agency (FSA) has announced plans to amend the country’s securities laws to include cryptocurrency insider trading as a punishable offense — a move that could reshape Japan’s digital asset regulatory landscape. Under the proposed framework, any trading activity conducted using non-public, price-sensitive information about crypto assets would be explicitly classified as illegal, bringing the cryptocurrency market closer to the governance standards applied to traditional securities.

According to the FSA's draft proposal, trading based on undisclosed material information — such as token listings, exchange partnerships, or protocol updates — would be considered insider trading.

Offenders will face fines equivalent to their illegal profits and, in serious cases, criminal prosecution. Enforcement power will be shared between the FSA and the Securities and Exchange Commission (SESC), which will have new powers to investigate, audit and recommend legal action.

This is the first time Japanese regulators have sought to formally define insider trading in the cryptocurrency context, treating digital assets not as speculative instruments but as financial products regulated under market integrity principles.

Narrowing the insider gap

The FSA draft, circulated internally last week, extends the FIEA's insider trading bans - which have long applied to stocks and bonds - to crypto assets, criminalizing trades based on "material non-public information" that could alter prices.

Currently, cryptocurrencies are in a gray area under the control of self-regulatory organizations like the Japan Virtual Asset and Virtual Currency Exchange Association (JVCEA), leaving violations to special investigations. The reform empowers the SESC to launch formal investigations, impose penalties equivalent to realized profits (or avoided losses), and refer cases to prosecutors for up to five years in prison.

FSA Director-General Kazutoshi Hosono called the move “essential for market integrity,” citing a 2024 SESC survey that found 15% of Japanese traders suspected insider interference in token pumps. Timeline: Policy details are set to be finalized by December 2025, with a bill being submitted to the Diet in early 2026 — likely to be passed by mid-year. This aligns with Tokyo’s post-2023 crypto thaw, where spot ETFs and stablecoin pilots have attracted $2 billion in investment.

Challenges in implementation

Despite the clear intent, experts warn that applying insider trading laws to cryptocurrencies would be complicated both legally and technically.

Unlike public companies that issue stocks, most cryptocurrency tokens do not have a centralized issuer, making it difficult to determine who qualifies as an “insider.”

The question is whether developers, exchange employees, or early investors fall under the definition of insiders — and how regulators can prove information asymmetry or intent in a decentralized ecosystem where data is partially public but not always transparent.

Legal scholars argue that initial enforcement could target misconduct at the exchange level (e.g., employees trading tokens before listing) rather than the developer network, setting a precedent similar to early securities regulation in traditional markets.

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