Currently, exchanges must hold customer deposits in cold wallets but have no dedicated emergency or compensation reserves, a gap the new rule seeks to close.

The regulation is designed to ensure exchanges can cover operational risks and safeguard customer funds, signaling heightened consumer protection in crypto.

The FSA intends to submit the legislation to parliament in 2026 during the ordinary Diet session.

Separately, Japan is considering tax and regulatory reforms, including treating crypto as regulated financial products, potentially lowering gains tax to 20%, and exploring yen-stablecoin initiatives with major banks.

Asset managers are looking at new crypto investment products in anticipation of regulatory changes, potentially broadening trading services and boosting competition in the digital asset space.

Wealth managers are preparing crypto-based investment trusts to expand offerings in the Japanese market.

Overall, the push aims to align crypto regulation with traditional finance, enhance consumer protection, and support market stability as the sector evolves.

Japan’s Financial Services Agency plans to require crypto exchanges to establish liability reserves to cover potential losses from hacks and other incidents, expanding investor protection in the crypto sector.

This move is part of broader efforts to align virtual currencies with traditional securities rules and bolster market safety.

The regulatory push follows other Japan measures, including plans for third‑party custodians, registration of trading partners for local exchanges, and possible reclassification of crypto assets under the Financial Instruments and Exchange Act.

The push comes after a major 2024 hack on DMM Bitcoin that caused about $312 million in losses, underscoring the need for stronger safeguards.

The reserve requirement signals ongoing regulatory efforts to oversee banking, securities, and digital assets to promote market stability.