Japan’s Financial Services Agency (FSA) is preparing a major update to its cryptocurrency regulation. According to Nikkei, the agency plans to introduce a new system requiring providers of digital asset custody and trading platforms to register with authorities before working with crypto exchanges.

New framework aims to close security gaps

Under current Japanese law, crypto exchanges must already keep customer deposits strictly segregated, for example by storing them in cold wallets (offline storage). However, no such rules exist for third parties – tech firms or custodians providing software or trading systems to exchanges.

The FSA now aims to close this loophole. If the proposal is approved, all companies engaged in cryptocurrency custody or trading systems will need to complete mandatory registration. Exchanges will only be allowed to use services from these registered providers. The goal is to enhance transparency and reduce the risks of cyberattacks and system failures.

Response to a massive hack

According to Nikkei, most members of the Financial System Council – an advisory body to the Japanese prime minister – support the proposal. One major trigger was the 2024 DMM Bitcoin hack, in which attackers stole approximately 48.2 billion yen (around 312 million USD) in bitcoins.

Investigators found that the entry point for the attack was Tokyo-based software company Ginco, which DMM had outsourced its trading system management to. The incident raised serious concerns about the security risks of unmonitored outsourcing in the crypto sector.

New rules expected by 2026

The FSA plans to compile the working group’s findings into a report forming the basis for amendments to the Financial Instruments and Exchange Act. These legislative changes are expected to be presented during the 2026 regular session of Japan’s parliament.

Support for stablecoins is growing

While tightening oversight of cryptocurrency custody, the FSA is simultaneously promoting domestic stablecoin projects – digital currencies pegged to fiat money. In October, the agency approved Japan’s first stablecoin, JPYC, linked to the yen, which was soon launched on the market.

Last week, the FSA also announced support for a pilot project involving Japan’s three largest banks – Mizuho Bank, MUFG, and SMBC – which are testing a stablecoin-based payment and remittance system designed to improve efficiency and reduce transaction costs.

Japan as a model for Asian regulation

Japan has long positioned itself as one of the most regulated yet open economies toward cryptocurrencies. Following several high-profile hacks, including the infamous Mt. Gox collapse, the country has steadily increased transparency and oversight. The FSA’s latest initiative fits into Japan’s broader goal of building a secure, trustworthy, and stable environment for digital assets – one that could serve as a model for other Asian nations.

Sources:

https://www.nikkei.com/article/DGXZQOUB052RR0V01C25A1000000/

https://www.theblock.co/post/297822/over-300-million-in-bitcoin-stolen-from-japanese-exchange-dmm-bitcoin

https://prtimes.jp/main/html/rd/p/000000283.000054018.html

https://www.nikkei.com/article/DGXZQOUB015KJ0R00C25A4000000/