Japan to tighten crypto exchange oversight with new reserve mandate: report

Japan's Financial Services Agency is planning to require local crypto exchanges to establish reserves against liabilities, further strengthening investor protection within the crypto sector, according to a report from Nikkei Asia.

Currently, Japan mandates exchanges to store user crypto deposits in cold wallets, but does not require them to maintain reserves for compensation in the event of losses caused by hacks or exploits.

The FSA is seeking to change that by legally obligating exchanges to manage liability reserves. The agency plans to to submit the bill to parliament next year, Nikkei said.

Earlier this month, the FSA was reportedly planning to adopt a new system requiring third-party crypto custodians and trading partners for local exchanges to register with authorities prior to offering services. This new requirement is also slated to be submitted during the 2026 ordinary Diet session.

In 2024, local crypto exchange DMM Bitcoin was hacked, leading to losses of around $312 million. The hacker's entry point was identified to be Tokyo-based software firm Ginco, to which DMM had outsourced its trading management.

Beyond investor protection, Japan has been making sweeping changes in digital asset-related rules and regulations to bring more clarity to the sector.

The FSA is weighing a plan to reclassify cryptocurrencies under the Financial Instruments and Exchange Act, rather than the Payment Services Act. This reform is part of a broader push to treat crypto as a regulated financial product and to lower the tax on digital asset gains to a flat 20%, in line with stocks and bonds.

The country has also advanced efforts around stablecoins. Japanese regulators backed a joint yen-stablecoin project involving three major banks, sending clear signals that they view the fiat-pegged stablecoin ecosystem as part of its long-term financial strategy.

In reaction to these changes, local players are exploring new product offerings and expansion opportunities. According to a Monday Nikkei report, six of Japan's largest wealth managers, including Mitsubishi UFJ Asset Management and Daiwa Asset Management, are preparing to develop the country's first crypto-based investment trusts.