Japanese regulators are preparing to introduce stricter consumer protection measures following a series of high-profile security breaches in recent years. According to Nikkei, the Financial Services Agency (FSA) plans to propose legal amendments as early as next year that would require crypto exchanges to maintain liability reserves to compensate users in the event of major losses. The system would mirror existing rules for securities firms, which must set aside funds to cover damages from mishandled trades or improper conduct.
Currently, exchanges are required to keep customer assets in cold wallets as their primary safeguard — a measure intended to reduce exposure to online attacks. But large-scale incidents have shown the limits of this approach. In the 2024 DMM Bitcoin hack, attackers exploited a third-party vulnerability and stole more than 4,500 BTC. The exchange was forced to raise hundreds of millions of dollars through emergency loans and asset sales, leaving customers facing prolonged delays.
The FSA aims to prevent similar scenarios by introducing a dedicated reserve requirement tailored to the crypto sector. Traditional financial institutions must maintain reserves of 2 billion to 40 billion yen; for crypto exchanges, the amount would vary based on trading volume and past security incidents.
The framework would also allow exchanges to purchase insurance to reduce the financial strain of maintaining large reserves. Additional rules would ensure the return of customer assets if an exchange collapses, requiring user funds to be segregated from company assets and allowing a lawyer or court-appointed administrator to distribute funds if management loses control.
A draft bill is expected to be submitted to parliament during the 2026 ordinary session.
Japan’s move follows global precedents. Binance maintains its Secure Asset Fund for Users (SAFU), an emergency insurance pool funded by trading fees, while India’s CoinDCX operates a similar Crypto Investors Protection Fund backed by a portion of exchange revenue.
FSA adjusts Japan’s broader crypto strategy
Even as it strengthens investor protections and prepares to crack down on insider trading, the FSA is positioning Japan to support regulated digital asset products. The agency has proposed reclassifying cryptocurrencies under the Financial Instruments and Exchange Act instead of the Payment Services Act — a shift that would align them with traditional securities and open the door to investment trusts, ETFs, and tax reforms treating digital assets more like stocks.
