Japan Pushes a New Era of Exchange Accountability
Japan is preparing one of its biggest crypto regulatory overhauls in years, introducing strict reserve mandates for all cryptocurrency exchanges. Under new amendments to the Payment Services Act, platforms will now be required to hold part of customer assets domestically, creating a stronger buffer against potential losses from hacks or operational failures.
The Financial Services Agency (FSA) is finalizing these rules and says the shift is a direct response to recent exchange vulnerabilities, including system problems at Japan Digital Design (JDD). The regulator noted that JDD recently signed a letter of intent with Mitsui Knowledge Industry Co. to investigate internal issues, adding urgency to Japan’s tightening stance.
Stronger User Protections After Major Hacks
Japan’s push for reform comes after hundreds of millions of dollars were lost in a massive 2024 breach at one of the country’s largest exchanges. The FSA emphasized that the biggest gaps were not inside the exchange itself but in third-party providers, highlighting a growing concern over supply-chain weak points.
With the new framework, exchanges must maintain a dedicated liability reserve, effectively acting as a user insurance fund. Losses due to hacks, unauthorized withdrawals, or fraudulent access would be covered directly, ensuring users receive fast reimbursement without waiting for lengthy investigations.
Japan intends to require all custodial partners, wallet providers, and third-party service vendors used by exchanges to register with regulators. The FSA wants every participant-direct or indirect-handling customer funds to meet rigorous technical and operational standards.
Japan Aims for Global-Standard Security Practices
As part of its stricter ruleset, the FSA is pushing exchanges toward international-grade information security management. The regulator says supply-chain attacks remain one of its biggest concerns, and the new framework seeks to close those gaps before they can be exploited.
Japan’s main crypto trade body, the Japan Virtual and Crypto Assets Exchange Association (JVCEA), is already preparing internal reform. Exchanges have committed to retraining auditors, strengthening internal controls, and aligning their operations with the FSA’s incoming standards. The overall goal is to restore public confidence and reinforce Japan’s position as one of the world’s most advanced regulated crypto markets.
Japan Moves to Integrate Crypto Into Traditional Finance
Beyond safety measures, Japan is accelerating efforts to legally integrate crypto into its broader financial system. The FSA’s working group is finalizing recommendations to classify certain digital assets as “financial instruments” under the Financial Instruments and Exchange Act (FIEA).
This shift would place select cryptocurrencies under rules similar to those governing stocks or bonds, including potential insider-trading regulations for traders using non-public information. A formal bill is expected within the next year.
The FSA is also drafting rules for crypto lending, staking, and other credit-exposure services, aiming to protect users from risks tied to mismanaged or insolvent platforms.
Meanwhile, regulators are considering loosening restrictions on banks, enabling major financial institutions to run crypto platforms and hold digital assets on their balance sheets-but only under strict risk-management conditions. If approved, this would mark one of Japan’s most significant steps toward institutional-scale crypto adoption.
