New Reserve Model to Shield Crypto Users from Unauthorized Losses
Japan's Financial Services Agency (FSA) will introduce mandatory liability reserves for cryptocurrency exchanges. This measure is designed to protect users by enabling fast compensation when digital assets are lost due to unauthorized access or internal system failures. The initiative comes as regulators are preparing new rules in response to rising security concerns and recent domestic breaches.
A working group of the Financial System Council is in the process of finalizing a report on virtual currency regulations, which includes the proposed reserve mandate. The FSA has received the group's findings and intends to take action promptly.
The FSA accelerated its timeline for these measures following reports of internal system issues at Japan Digital Design Inc. This company subsequently sought support from external security firms, such as Mitsui Knowledge Industry Co.
The FSA stated that this decision was also influenced by hacking incidents at overseas exchanges. A significant breach in Japan during 2024 further amplified these concerns. An incident at a third-party provider resulted in one of the country's largest platforms losing hundreds of millions of dollars, raising questions about the security of outsourced systems and operational risks.
Major Regulatory Reform with New Liability Rules
The introduction of liability reserve rules represents a significant transformation in digital asset regulation in Japan over the past two years. Under this regulation, exchanges will be required to maintain a distinct fund to protect customers from losses incurred through unauthorized withdrawals. This reserve will allow customers to recover their funds quickly, without operational delays, and prevents them from bearing the costs of hacks or fraudulent transfers.
Recent domestic breaches have added a sense of urgency to these regulatory efforts. DMM Bitcoin experienced an attack in 2024 when a hacker gained access through its software provider, Ginco, which managed a portion of its trading operations. This incident led to losses of approximately $312 million and intensified calls for enhanced protective measures.
The Financial Services Agency is also planning to implement regulations for third-party crypto custodians and trading partners. Consequently, these companies will be required to register with the regulators before they can operate within the local exchange market. This scheme is anticipated to be presented during the 2026 regular Diet session.
This regulatory shift could have a notable impact on the cryptocurrency sector, as policymakers are considering classifying digital assets as financial products. If this change is adopted, it would result in the application of a uniform 20% capital gains tax, aligning with the rates for stocks and bonds.
Japan Advances Stablecoin and Investment Reforms
Japan is also making progress on its stablecoin regulations. Regulators have approved a joint yen-stablecoin project involving three major banks. This initiative underscores the government's long-term perspective, viewing fiat-pegged stablecoins as integral to the national financial system.
Local financial institutions are already preparing to launch new products. According to a Nikkei report from Monday, six of Japan's largest wealth managers, including Mitsubishi UFJ Asset Management and Daiwa Asset Management, are preparing the country's first crypto investment trusts. These developments bring to the forefront a key question for the sector: will enhanced protections encourage wider adoption among more cautious investors?
Asset managers anticipate that regulatory clarity will facilitate the introduction of new investment vehicles. They are actively exploring tools that could potentially expand trading activity and foster greater competition within the domestic market.
The mandate for liability reserves signifies Japan's continued commitment to developing a secure regulatory structure that fosters investor confidence. The overarching aim of this framework is to establish comprehensive oversight across banking, securities, and emerging digital assets, while simultaneously preserving market stability.