Japan Targets Cryptocurrency Custodians in FSA Oversight Plan
- Japan’s FSA plans mandatory registration for all crypto custody and trading providers.
- The move follows major hacks, aiming to close security gaps and protect user assets.
- New rules will ensure only approved custodians can serve exchanges under tighter oversight.
Japan’s Financial Services Agency (FSA) is preparing to tighten control over digital asset operations. The regulator plans to require crypto custody and trading service providers to register with authorities before serving exchanges. A working group under the Financial System Council discussed the proposal on November 7. The council serves as an advisory body to the Japanese Prime Minister, according to Nikkei.
At present, crypto exchanges in Japan must maintain strong asset management systems, including storing user deposits in cold wallets. However, third-party providers handling custody or trading operations are not covered by similar rules. The FSA aims to close this regulatory gap by making registration mandatory for such entities.
FSA Moves to Tighten Crypto Security Rules
Under the new plan, exchanges would only be allowed to use systems from approved and registered custodians. The goal is to reduce risks of theft, data leaks, and system failures that could disrupt markets or harm users. Officials said this framework would raise accountability standards across digital asset platforms.
Tighter regulation was called for following the major 2024 DMM Bitcoin hacking. About 48.2 billion yen, or $312 million, worth of Bitcoin was heisted. Ginco, a Tokyo-based software company that maintained DMM’s trading systems, was the hacker’s entry point, investigators found. The case exposed flimsy back-end safeguards in outsourced crypto services.
Most members of the Financial System Council supported the proposal for mandatory registration. They said clear and consistent rules would strengthen Japan’s digital asset environment. The FSA intends to finalize a report from these discussions and submit amendments to the Financial Instruments and Exchange Act in the 2026 ordinary Diet session.
The regulator’s latest move follows earlier collapses, including Coincheck and FTX Japan. In both cases, internal weaknesses and third-party system risks led to large financial losses. The FSA believes a structured registration system could prevent similar disruptions in the future.
FSA Strengthens Crypto Framework and Backs Stablecoin Expansion
The regulator has also been pushing forward with plans to encourage the responsible use of stablecoins and blockchain. The FSA also greenlighted Japan’s first yen-pegged stablecoin, JPYC, in October. The token was already released immediately after approval, and this is an important step for the controlled cryptocurrency market in Japan.
FSA is reportedly also weighing the approval of holding banking Bitcoin and other digital assets as part of its wider reserve, to buy and sell. This would mainstream digital assets in finance. Moves in that direction would be accompanied by strict capital and risk management rules.
Private companies are also expanding their blockchain initiatives. On October 28, TIS Inc., an IT service provider for major financial institutions, launched a multi-token platform with Ava Labs. The platform allows banks to issue stablecoins and security tokens using the ERC20 standard. It includes secure key management for financial institutions.
Related: Japan Moves to Ban Crypto Insider Trading Under New Rules
Self-regulation is also being pursued by Japanese exchanges and blockchain companies. The FSA-approved Japan Virtual Currency Exchange Association (JVCEA), has started to establish internal procedures governing the use of stablecoins. The association is looking to develop safe frameworks in the process, as it backs the government’s digital finance agenda.
The FSA also supported a stablecoin project of MUFG, Sumitomo Mitsui, and Mizuho in conjunction. The banks would experiment with yen-backed stablecoins for international transactions. These projects would be reviewed by the FSA for compliance and legal effectiveness before being globally implemented.
The regulator is also considering new policies to prevent insider trading in crypto markets. Reports from Reuters indicate that Japanese financial firms and exchanges are preparing new crypto services. Demand for regulated digital asset products continues to rise across the country.
Japan’s regulators’ approach highlights its desire to secure digital finance while safeguarding innovation. The FSA has prioritized a fine line between safety, transparency, and technological advancement.
