Japan’s Financial Services Agency (FSA) is preparing to introduce a major regulatory change that would require cryptocurrency exchanges to set aside dedicated liability reserves capable of covering customer losses during security breaches or operational failures. The new rules are expected to be proposed next year as part of Japan’s push to strengthen consumer protection.
According to a report from Nikkei, a bill formalizing the requirement is likely to be submitted during the 2026 parliamentary session, marking one of the most significant updates to Japan’s crypto framework since 2017.
A Response to Years of Security Incidents
Japan has faced multiple high-profile crypto security breaches over the years, prompting regulators to tighten oversight. Despite strict rules requiring exchanges to store customer funds in cold wallets, vulnerabilities continue to emerge.
A notable example came in 2024, when DMM Bitcoin suffered a major hack that exploited a third-party system weakness, allowing attackers to steal more than 4,500 BTC. The platform was forced to secure hundreds of millions of dollars in emergency loans to compensate users, leaving many waiting months for resolution.
The FSA says the planned liability reserves are designed to prevent such situations by giving exchanges a funding buffer to immediately reimburse customers after major incidents.
How the New Reserve System Would Work
Japan plans to model its crypto reserve framework after the compensation reserve system already required for securities firms.
Key elements of the proposed system:
- Exchanges would hold liability reserves sized according to
- Trading volumes
- User activity
- Past security incidents
- Reserve requirements for traditional firms range from 2 billion to 40 billion yen, giving a benchmark for crypto platforms.
- Exchanges may be allowed to purchase insurance policies to reduce the financial burden of maintaining large reserves.
- A separate mechanism would ensure customer assets are returned if a platform goes bankrupt, including the appointment of a court-supervised administrator.
The FSA will also reinforce requirements for exchanges to segregate customer assets from company funds, a core principle for investor protection.
Global Precedents and Japan’s Evolving Crypto Strategy
Japan’s approach aligns with practices already seen in other markets:
- Binance operates its Secure Asset Fund for Users (SAFU), a publicly tracked insurance fund.
- CoinDCX in India maintains a Crypto Investors Protection Fund financed through exchange revenues.
At the same time, Japan is not aiming only to impose restrictions. The FSA is working to recalibrate its crypto strategy, strengthening investor protections while encouraging the development of regulated digital asset products.
To support innovation, the regulator has proposed shifting cryptocurrencies from the Payment Services Act to the Financial Instruments and Exchange Act. This move would allow:
- Crypto ETFs
- Investment trusts
- Updated tax rules treating digital assets like stocks
These changes could open the door to more institutional participation and new investment vehicles in Japan’s crypto market.
