Japan Sets Sights on Stronger Oversight With Crypto Reserve Legislation

Japan’s Financial Services Agency (FSA) is preparing a legislative overhaul that will require domestic cryptocurrency exchanges to maintain liability reserves, marking a significant shift toward stronger investor safeguards.

FSA Prepares New Reserve Framework

Japan’s Financial Services Agency is advancing plans to introduce mandatory liability reserves for crypto exchanges, aiming to strengthen consumer protection and align the digital asset sector with traditional financial standards. According to reports from Nikkei Asia, the agency intends to submit the proposed legislation to parliament in 2026.

Under the current rules, exchanges must store customer assets in offline cold wallets, a measure designed to reduce the risk of theft. However, there is no legal requirement compelling platforms to maintain reserves specifically for compensating users if funds are lost due to cyberattacks or internal failures. The FSA now intends to eliminate that gap by obligating exchanges to hold reserves earmarked for potential liabilities.

Modelled on Traditional Securities Rules

The forthcoming system is expected to resemble the reserve requirements imposed on securities firms, which hold between ¥2 billion and ¥40 billion (approximately $12.7 million to $255 million) depending on trading activity. If adopted, the framework would scrap the existing exemption tied to the use of cold wallets and establish clearer procedures for asset distribution during insolvency.

One notable element includes empowering court-appointed administrators to manage customer payouts if an exchange enters bankruptcy. The move is aimed at preventing years-long delays in asset recovery, an issue that has plagued the industry.

Security Incidents Drive Regulatory Pressure

Japan’s push for tighter oversight follows repeated security breaches involving domestic exchanges. The sector continues to deal with the aftermath of the Mt. Gox collapse, when roughly 850,000 BTC was stolen in 2014. Repayments only began in 2024 and are scheduled to continue through October 2026.

More recent cases have reinforced concerns. In May, DMM Bitcoin disclosed a loss of 4,502 BTC, worth around $305 million, after North Korean hackers compromised a contractor at Ginco, the wallet software provider managing its transactions. Last month, blockchain investigators also traced the theft of approximately $21 million in Bitcoin and other cryptocurrencies from addresses linked to SBI Crypto, identifying laundering activity through Tornado Cash and potential ties to North Korea.

Broader Regulatory Reforms Under Consideration

Japan is simultaneously pursuing wider reforms in its digital asset regulatory framework. The FSA is evaluating whether cryptocurrencies should be reclassified under the Financial Instruments and Exchange Act instead of the Payment Services Act, a shift that would treat crypto assets more explicitly as financial products. The proposal is paired with discussions around lowering tax rates on digital asset gains to a flat 20%, bringing them in line with equities and bonds.

The government has also continued to expand its stablecoin strategy, lending support to a joint yen-denominated stablecoin initiative involving three major banks. Regulators view fiat-backed stablecoins as strategically important to the country’s long-term financial infrastructure.

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