Financial watchdog aims to close security gaps following major exchange-related hacks
Japan’s Financial Services Agency (FSA) is preparing new regulations that would require all crypto custody and trading management service providers to register with authorities before offering their services. The proposed system seeks to tighten oversight of third-party firms working with crypto exchanges and strengthen investor protection following a series of high-profile security breaches.
Regulatory Reform to Address Security Loopholes
According to a report from Nikkei, discussions held on November 7 by a working group under Japan’s Financial System Council, which advises the Prime Minister, focused on creating a formal registration framework for digital asset custodians. The move would ensure that crypto exchanges can only use services from licensed providers, enhancing accountability across the sector.
Under current law, crypto exchanges must maintain secure storage practices, such as keeping user assets in cold wallets, but no comparable rules exist for third-party providers that manage trading systems or custody operations on behalf of exchanges.
The FSA’s proposal aims to eliminate such regulatory blind spots and reduce risks of theft or system failures. The urgency of reform follows the 2024 DMM Bitcoin hack, where 48.2 billion yen ($312 million) in Bitcoin was stolen. Investigations later revealed that the breach originated from Tokyo-based software firm Ginco, an outsourced trading management partner of DMM Bitcoin.
Industry and Policy Momentum
Most members of the working group expressed strong support for the new registration system, emphasizing the need for clearer rules governing digital asset infrastructure. The FSA is expected to compile a report outlining its recommendations and submit amendments to the Financial Instruments and Exchange Act during Japan’s 2026 ordinary Diet session.
Meanwhile, Japan’s crypto sector continues to evolve under a tightening but innovation-friendly framework. The FSA recently approved the country’s first yen-pegged stablecoin, JPYC, and announced support for a stablecoin pilot program involving Mizuho Bank, MUFG, and SMBC — the nation’s three largest banks.
Japan’s latest regulatory initiative underscores a dual commitment to innovation and investor security. By mandating registration and oversight of crypto custody providers, the FSA aims to restore confidence in the digital asset market, ensuring that future growth in Japan’s crypto ecosystem occurs under transparent and secure operational standards.
Disclaimer
This content is for informational purposes only and does not constitute financial, investment, or legal advice. Cryptocurrency trading involves risk and may result in financial loss.