Japan Seeks to Protect Crypto Investors by Introducing New Rules for Exchanges

Japan is moving to tighten safeguards in its digital asset industry by preparing rules that would force crypto exchanges to maintain reserves for potential customer losses.

According to a report from Nikkei, the Financial Services Agency intends to submit legislation in 2026 that would require companies handling digital assets to build loss-coverage reserves similar to those long required in the securities sector. The intent is to ensure that customers can be compensated if an exchange is breached or suffers an internal failure that results in missing funds.

Japan’s current crypto framework requires platforms to keep most customer assets in cold wallets, a measure viewed as one of the strongest defenses against cyberattacks. Even so, firms that follow these custody rules do not have to maintain specific financial buffers to cover losses. That gap has left users exposed when security incidents occur.

The proposed overhaul would align crypto exchanges with securities brokers, which typically maintain reserves ranging from $12.7m to $255m, depending on their trading activity and overall risk exposure. Regulators are expected to draw on those precedents, along with records from previous crypto thefts, to calculate appropriate levels for digital asset companies.

To help curb the financial burden, the FSA is considering allowing firms to meet part of their reserve requirements through insurance policies, creating a mix of internal capital and external risk coverage.

Authorities are also focused on improving protections in cases of bankruptcy or mismanagement. The plan would strengthen rules that separate customer assets from company funds and streamline the process for handing control to an independent administrator, like a court-appointed attorney, who can return money to users if an exchange collapses or if executives lose access to key systems.

Momentum for tougher measures has grown after several major breaches. Last year, DMM Bitcoin said roughly $40 million worth of Bitcoin had been lost. Bybit later reported in 2025 that attackers stole about $1.46 billion.

Other regions are advancing similar safeguards. The EU’s MiCA framework requires cryptocurrency service providers to maintain capital and secure insurance coverage. Hong Kong mandates that licensed exchanges build compensation pools with deposits and insurance. Japan’s plan would place it closer to those international models.

The shift also reflects a broader reassessment of digital assets within the country. Policymakers originally treated crypto primarily as a payment tool. However, their growing role as investment vehicles has sparked debate about moving parts of the market under the Financial Instruments and Exchange Act, which governs securities, derivatives, and insider trading.

Officials are also preparing wider reforms that could classify more tokens as financial products and reduce taxes to encourage regulated activity.

Meanwhile, the Japan Exchange Group, which operates the Tokyo Stock Exchange, is reviewing backdoor listing regulations and considering tighter audits for companies that adopt large crypto asset holdings after some firms posted steep losses during recent volatility.

These steps aimed at further clarifying different aspects of the use of digital assets will help entities like Circle Internet Group Inc. (NYSE: CRCL) that are looking to design solutions intended for various players within this growing industry.

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