Japan Advances New Rules Requiring Crypto Exchanges to Hold Safety Reserves

Japan is preparing another overhaul of its digital-asset framework as regulators move to require cryptocurrency exchanges to maintain domestic safety reserves that protect customer funds during operational failures or security incidents.

According to officials working on amendments to the Payment Services Act, exchanges will be required to keep a portion of customer assets within Japan while holding new liability reserves designed to cover losses from hacks, unauthorized transfers, or internal system disruptions. The working group drafting the reforms is finalizing the technical details, building on revisions to the Payment Services Law enacted in June 2025.

The timeline for introducing the new rules accelerated after Japan Digital Design Inc. (JDD) disclosed issues with its internal systems and signed a letter of intent with external security specialists, including Mitsui Knowledge Industry Co. The FSA also pointed to recent hacking incidents at overseas platforms as strengthening the need for earlier implementation.

Under the , exchanges must allocate a specific buffer to ensure customer reimbursements can be processed without delay. These reserves will operate in conjunction with an insurance-backed mechanism designed to protect users from losses resulting from fraudulent outflows or unauthorized access. Regulators have described the measure as the largest shift in Japan’s crypto-oversight structure in two years.

The revisions follow a 2024 breach at a major Japanese platform that resulted in hundreds of millions of dollars in losses. Investigators noted that the breach originated in third-party services rather than the exchange’s primary infrastructure. In response, the FSA plans to require wallet operators and custodians used by exchanges to register formally, limiting custody of client assets to licensed entities.

Supply-chain risk has been identified as a central concern. Regulators intend to set higher technical and operational standards for both exchanges and their external service partners. Authorities are encouraging the adoption of internationally aligned security frameworks and adding to information-security governance.

The FSA is also considering classifying certain cryptocurrencies as financial products eligible for bank handling, according to discussions within an advisory panel under the Financial Services Council. To ease implementation costs, authorities may allow exchanges to use insurance policies in place of maintaining full cash reserves.

Regulators are additionally evaluating a rule that would require firms providing crypto-management software to notify authorities in advance, following concerns raised by the breach at DMM Bitcoin.