Japan's financial regulator plans to ban insider trading in the crypto-asset sector, aiming to enact the law by 2026.
Japan is preparing to take a pioneering step in regulating the Asian crypto-asset market. The country’s financial regulators are drawing up plans to ban insider trading in the digital asset sector, a move seen as necessary to protect investors and improve market transparency, the Nikkei newspaper reported on Tuesday.
Japan's Securities and Exchange Supervisory Commission (SESC), the country's top financial watchdog, will soon be given the power to investigate suspected violations related to trading based on unpublished information.
The agency can recommend additional penalties or refer cases for criminal prosecution in serious cases. Previously, insider trading regulations did not apply to digital assets, creating a significant legal gap in dealing with information abuse.
Roadmap for building a comprehensive legal framework
The Japanese Financial Services Agency (FSA), the governing body of SESC, will discuss the details of the new regulation with the aim of enacting it into law by 2026. According to the revealed plan, the regulator will first officially declare the act of trading crypto assets based on non-public information as prohibited, and then develop more specific and detailed rules to ensure feasibility in implementation.
Insider trading is the practice of using non-public information to buy or sell assets, allowing the person with the information to make an illegal profit. In the crypto-asset space, this often involves exploiting information about new Token listings on major exchanges, where the price of coins often surges after the official announcement, a phenomenon known as the Coinbase effect.
The first case of insider trading in crypto assets was brought in the United States in 2022, when Ishan Wahi, a former Coinbase product manager, provided information about upcoming Token listings to his brother Nikhil Wahi and a friend, Sameer Ramani. The two bought the Token before Coinbase announced the listings and then sold them for a significant profit from the price increase.
Japan has long been considered one of Asia's largest crypto-asset trading hubs. The famous Bitcoin exchange Mt. Gox was based in Tokyo and helped create a strong retail market for digital assets in the country. However, after a massive and lengthy cyberattack, Mt. Gox was forced to shut down in 2014. Refunds to affected users only began rolling out last year, ending nearly a decade of waiting for hundreds of thousands of account holders.
