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Japan Moves to Mandate Reserves for Crypto Exchanges as Hacks Mount
Japan is preparing another major tightening of its digital-asset rulebook, with the Financial Services Agency (FSA) planning to require crypto exchanges to set aside liability reserves to compensate customers in the event of hacks, operational failures, or bankruptcies, according to reporting from Nikkei.
The proposal marks a shift in how Japan views the risks attached to digital-asset custody. Exchanges are already required to store customer crypto in cold wallets — a measure meant to reduce the chance of theft because the assets are kept offline.
But under current law, firms have no obligation to hold reserve funds if losses occur despite these safeguards. Regulators now see that gap as unacceptable, particularly after repeated high-profile breaches.
The FSA aims to submit legislation to parliament in 2026. If passed, exchanges would need to build reserve balances similar to those maintained by traditional securities firms, which typically set aside between ¥2 billion and ¥40 billion depending on trading volumes.
Those benchmarks, along with the history of crypto-asset leaks, will guide the FSA in determining appropriate thresholds for digital-asset platforms.
To ease the financial burden, the agency is considering allowing exchanges to meet part of the requirement through insurance. That approach mirrors policies in the European Union and Hong Kong, both of which have introduced capital and insurance mandates for crypto platforms following their own surge in security incidents.
Japan’s painful history of crypto hacks
Japan’s shift is informed by a painful track record. In May 2024, DMM Bitcoin lost ¥48.2 billion in bitcoin — one of the largest exchange breaches in the country since Mt. Gox. In February 2025, Bybit lost roughly $1.46 billion in a global hack.
Those events renewed questions about whether cold-wallet rules alone are enough, especially as exchanges increasingly outsource technology and operational functions to external vendors.
The reforms extend beyond reserves. The FSA wants a legal framework that ensures customer assets can be swiftly returned if an exchange collapses or loses managerial control.
That means stricter asset segregation and clearer authority for court-appointed administrators to return funds directly to users.
Regulators are also weighing a broader reclassification of crypto assets under the Financial Instruments and Exchange Act, reflecting their evolution from payment tools into speculative investment products. Such a shift would trigger insider-trading bans, enhanced disclosure rules, and more rigorous custody audits — effectively pulling crypto closer to the standards applied to securities firms.
Japan is also moving in parallel on adjacent fronts. The FSA is considering a registration system for third-party custodians and technology providers, tightening oversight of the wider ecosystem that supports exchanges.
Meanwhile, domestic financial institutions continue to deepen their involvement: JPYC recently launched what it calls the world’s first fully redeemable yen-pegged stablecoin, and major asset managers are preparing the country’s first crypto-based investment trusts.
Taken together, the planned reserve requirement and the broader regulatory overhaul signal Japan’s intent to fortify its crypto market while encouraging institutional participation.
Japan and lower crypto taxes
Earlier this year, Japan’s Financial Services Agency (FSA) finalized a major plan to reclassify 105 cryptocurrencies — including bitcoin — as financial products under the Financial Instruments and Exchange Act. The shift would impose the same disclosure, reporting, and market-surveillance rules that govern traditional securities.
Exchanges would need to publish detailed data on each token’s issuer, blockchain design, and volatility, while new insider-trading rules would bar issuers and exchange executives from trading on non-public information such as upcoming listings or bankruptcies. The amendments are slated for submission during the 2026 Diet session.
The FSA is also pushing a sweeping tax overhaul. Today’s crypto profits are taxed as “miscellaneous income” at rates up to 55%, but the agency wants a flat 20% rate, matching equities. The change could arrive in 2026 and would apply to individuals and institutions. The moves come as Japan accelerates its Web3 push, including reconsidering rules that restrict banks from holding or offering crypto.
This post Japan Moves to Mandate Reserves for Crypto Exchanges as Hacks Mount first appeared on Bitcoin Magazine and is written by Micah Zimmerman.
