Introduction of stricter rules for crypto exchanges in Japan
Japan is introducing significant changes to cryptocurrency regulation following renewed attention to Mount Gox-related redemption activity in 2024.
The Financial Services Agency (FSA) plans to introduce new rules requiring cryptocurrency exchanges to maintain special “liability reserves” to protect customers in the event they lose their assets due to hacks or unauthorized transfers. The measures aim to bring the cryptocurrency sector closer to the strict standards applied to traditional financial institutions in Japan, one of the most regulated markets in the world.
Since December 9, 2025, under the Payment Services Act, cryptocurrency exchanges registered in Japan must comply with strict requirements. These include asset custody, accounting, segregation of client funds, anti-money laundering (AML) controls and cold storage rules. However, there is still no legal requirement for exchanges to hold dedicated funds to compensate customers after a hack or unauthorized exit. The FSA and its Financial System Advisory Council have concluded that this protection gap must be closed.
Japan has a history of major failures and consumer losses in the crypto sector. The 2014 Mount Gox hack, in which more than 740,000 Bitcoins (BTC) were stolen, led to the bankruptcy of the exchange and a still-ongoing refund process. In May 2024, the Japanese DMM Bitcoin exchange lost 4,502.9 BTC due to a major theft. These incidents have shown that customers remain vulnerable even with strong safeguards such as mandatory cold wallet storage.
What the proposed reservation of liability rules require
The new rules will require exchanges to maintain dedicated funds to compensate customers in the event of security breaches.
A legal obligation to constitute liability reserves
According to a Nikkei report, the bill will require all registered cryptocurrency exchanges to hold liability reserves. These reserves will be used to reimburse customers if assets are lost due to unauthorized transfers. This requirement will apply even to funds held in cold wallets, ending the previous assumption that offline storage alone provides sufficient protection.
Reference reservations to the rules of the Japanese securities industry
The FSA plans to base the amount of these reserves on standards already used by securities firms in Japan. Traditional securities companies must maintain reserves ranging from 2 billion to 40 billion Japanese yen, depending on their size, risk profile and level of activity.
Insurance may be permitted as an alternative
To reduce the burden on small operators, the FSA is considering allowing exchanges to meet some or all of the reserve requirements through approved insurance policies instead of holding only cash or liquid assets. Details such as acceptable policy types, minimum coverage levels and approved insurers are still under discussion.
The reservation of liability is part of a broader regulatory overhaul
The liability reservation rule is only part of a broader set of reforms. Other proposed changes include:
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Require third-party wallet providers, custodians and trading system operators to register with regulators.
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The reclassification of certain cryptocurrencies under the Financial Instruments and Exchange Act would impose stricter securities rules, such as audits and disclosure requirements.
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Improving insolvency procedures so that customers can receive compensation more quickly, possibly from liability or insurance reserves.
Did you know? South Korea’s 2021 regulations required exchanges to partner with licensed banks, set up real-name accounts, and adhere to strict AML controls. This reduced the number of active exchanges from hundreds to less than 20 in a matter of months.
Why regulators are pursuing this framework
The main objectives are enhanced customer protection, greater market confidence and the elimination of remaining regulatory weaknesses:
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Strengthen customer protection: Hacking incidents and resulting reimbursement delays have demonstrated the need for faster compensation mechanisms. Liability reserves will ensure that exchanges have funds immediately available instead of forcing customers to wait in lengthy bankruptcy proceedings.
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Restore and maintain market confidence: Japan is working to more closely align rules on cryptocurrencies with those of the securities industry. With this policy, the country aims to position itself as a secure jurisdiction for digital assets and offset the reputational risk created by past high-profile hacking incidents.
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Closing regulatory gaps: Cold wallet requirements reduce the risk of attack but do not eliminate it completely. The new reserves add a second level of protection focused on financial recovery after an incident rather than solely prevention.
Did you know? The European Union Regulation of Crypto-Asset Markets (MiCA) harmonizes rules across 27 countries, covering licensing, reserve support, market abuse and consumer protection. It establishes the world’s first continent-wide regulation for crypto exchanges.
Implications for Stock Exchanges and Investors
The changes will affect exchanges, customers and the broader market in several ways:
Impact on trade
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Higher operating costs due to the need to hold large reserves or pay insurance
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Difficulty for small exchanges to meet requirements, which may lead to sector consolidation
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Additional accounting, reporting and compliance procedures.
Impact on customers
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Better protection against losses caused by exchange failures
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Faster compensation in the event of hacking thanks to the dedicated financial buffer
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Overall reduction of risks associated with the use of centralized platforms.
Impact on the broader market
Japan’s approach could influence regulatory developments in other countries. Stock exchanges around the world are likely to adopt more professional custody and risk management practices.
Did you know? U.S. crypto exchanges face a patchwork of state-level rules, including New York’s BitLicense, money transmitter laws and federal oversight of certain assets. This fragmentation makes compliance one of the most complex in the world.
What remains unclear
Many key details of the proposed regulations are still being finalized. These will depend on the next Financial System Council report and 2026 legislation.
Unresolved issues include:
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The exact method of calculating the reserve amount of each exchange
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To what extent insurance can replace cash reserves
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Implementation deadlines and grace periods for existing exchanges
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How reserves will interact with revised insolvency procedures
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Will the obligation extend to cases of mismanagement, and not just hacking?
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The precise methods of monitoring and application.
