Key Highlights
- Japan’s FSA plans to tighten crypto rules, requiring exchanges to work only with registered custodians.
- The move follows the massive $312 million DMM Bitcoin hack linked to system vulnerabilities.
- The new framework aims to boost security, accountability, and investor protection across the crypto sector.
Japan’s Financial Services Agency (FSA) is planning major updates to its cryptocurrency regulations, aiming to strengthen security and improve market accountability.
According to a local report, the proposal was discussed on November 7 by a government advisory panel under the Prime Minister’s Financial System Council. The plan would require crypto exchanges to use only systems provided by registered custodians, closing regulatory gaps and enhancing overall oversight.
Currently, the Japanese crypto exchanges follow strict rules regarding the management of customer assets, such as keeping most funds in offline “cold wallets.”
On the other hand, there are no similar regulations covering third-party companies that provide custody or trading systems to exchanges. This proposal from FSA aims to close this gap and strengthen overall system security.
During a recent meeting of the Financial System Council, an advisory body to the Prime Minister, most members supported the new system. They stressed the need for clear rules to ensure exchanges remain accountable even when they outsource critical services.
Focus on security after major breach
The renewed focus on security comes in the wake of the 2024 breach of DMM Bitcoin, in which hackers siphoned off about 48.2 billion yen, or $312 million, in bitcoin. The source of the intrusion was identified as Tokyo-based software provider Ginco, which handled much of DMM’s trading systems.
Following the incident, Japan enacted new crypto laws that better protect users. The rules demanded that exchanges store customer assets in the country, boost anti-money laundering checks, and permit uses such as making crypto available for in-app payments.
Last year, Japan’s Financial Services Agency (FSA) warned five offshore crypto exchanges, Bybit, KuCoin, MEXC Global, Bitget, and Bitcastle, for operating without registration.
Japan’s innovation push
Along with its push for stronger security, Japan is also encouraging innovation in digital finance. The FSA has greenlit a new pilot program to test yen-backed stablecoins with three of the country’s largest banks: Mitsubishi UFJ (MUFG), Sumitomo Mitsui (SMBC), and Mizuho.
The project, which was launched under the FSA’s Payment Innovation Project (PIP), is aimed at exploring ways stablecoins can make payments quicker and cheaper for businesses and consumers.
The agency also intends to revise the Financial Instruments and Exchange Act in order to bring cryptocurrencies under insider trading laws, like the rest of the world.
