Japan FSA plans to mandate liability reserves for crypto exchanges

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Cryptocurrency exchanges in Japan would be required to set aside dedicated reserves to cover potential liabilities under a new mandate that Japan’s Financial Services Agency (FSA) plans to introduce next year to protect investors. Summary Japan’s FSA plans to mandate crypto exchanges to hold liability reserves to cover customer losses. A bill formalizing the reserve requirement is expected to be submitted during the 2026 parliamentary session. With a number of high-profile security incidents unfolding over the past years, Japanese authorities are looking to introduce stricter safeguards to ensure customers can be compensated in the event of a major loss. Japan’s FSA plans to introduce legal amendments as early as next year that would mandate the creation of liability reserves that can be used to reimburse victims, according to a Nikkei report. Authorities want to model the system after how securities companies in the country are already required to set aside compensation reserves for mishandled trades or unfair practices. Currently, crypto exchanges are only required to store customer assets in cold wallets as the main layer of protection, based on the assumption that such wallets reduce risk from online threats. But these measures have failed to prevent severe losses in the past. For instance, during the 2024 hack of DMM Bitcoin, attackers were able to exploit a third-party vulnerability and siphon over 4,500 Bitcoin from the platform’s wallets. To make customers whole, the exchange had to raise hundreds of millions of dollars in emergency loans and asset sales, which left many users waiting for a resolution for an extended period. The agency hopes to avoid such scenarios by introducing this reserve requirement as an additional layer of protection for consumers who are increasingly participating in crypto investments and trading in the country. Traditional players are required to set aside between 2…