TLDR
- Japan’s Financial Services Agency is preparing new legislation to require crypto exchanges to maintain liability reserves.
- The proposed reserves will range from ¥2 billion to ¥40 billion, depending on the exchange’s size and trading volume.
- The new rules will eliminate the current exemption for exchanges using cold wallet storage to avoid reserve requirements.
- The proposal will allow exchanges to offset part of their reserve requirement through insurance coverage.
- Exchanges will need to notify regulators about third-party software providers handling wallet infrastructure.
Japan’s Financial Services Agency (FSA) is set to introduce new regulations for cryptocurrency exchanges. The proposal will require exchanges to maintain liability reserves to cover losses from security breaches, hacking, or operational failures. This move responds to past hacks and aims to strengthen investor confidence in Japan’s crypto market.
New Legislation to Ensure Liability Reserves for Crypto Exchanges
The FSA plans to submit a bill to Japan’s parliament in 2026. This bill will require all licensed crypto exchanges to set aside reserves, ranging from ¥2 billion to ¥40 billion. The size of the reserve will depend on the exchange’s trading volume and platform size.
Under current regulations, exchanges can avoid these reserves by using cold wallet storage. The proposed changes will eliminate this exemption and standardize the requirements for safeguarding customer funds.
The new framework will also require exchanges to have procedures in place for independent administrators to return funds if an exchange becomes insolvent. This change aims to prevent long delays in customer restitution, seen after the Mt. Gox collapse and the 2024 DMM Bitcoin breach.
Japan Proposes Insurance Option for Crypto Reserves
The proposal includes a provision that allows exchanges to reduce their reserve requirement with insurance coverage. This hybrid approach will help smaller exchanges comply with the new rules.
The insurance option is expected to ease the burden on smaller firms and prevent financial strain. This approach aligns with Japan’s goal of ensuring that exchanges can quickly restore customer funds after a security incident.
Recent high-profile hacks, such as the $305 million theft at DMM Bitcoin and the October 2025 breach at BI Crypto, have highlighted the need for stricter security measures. The FSA’s new rules aim to close these gaps and restore trust in the sector.
Notification of Third-Party Software Providers to Close Regulatory Gaps
Another key aspect of the proposed legislation is the requirement for exchanges to notify regulators about third-party software providers managing wallet infrastructure. This step is designed to close gaps in the current regulatory framework that have enabled high-profile thefts.
This regulation follows incidents like the DMM Bitcoin hack, which involved North Korea-linked hackers. By improving transparency around wallet management, Japan aims to strengthen security across the crypto sector.
Japan’s FSA believes these measures will increase market confidence. Industry analysts, such as Musheer Ahmed of Finstep Asia, support the proposal, stating it will enhance Japan’s position as a leading crypto hub.
The new rules are expected to improve investor protection and prevent future crypto exchange failures.
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