Japan Plans New Reserve Rules for Crypto Exchanges to Guard Against Hacks

Japan’s official financial regulatory body, the Financial Services Agency (FSA), is preparing to require cryptocurrency exchanges to allocate liability reserves against unauthorized outflows due to hacks and thefts. The new initiative from the FSA aims to protect users from hacks and operational failures in the asset market. The Nikkei, Japan’s leading business newspaper, reported on Monday that the FSA plans to submit legislation to parliament in 2026, requiring exchanges to allocate reserves to compensate users for losses resulting from cyberattacks.

According to the report, a working group of the Financial System Council, an advisory body to the Prime Minister, is closely examining the legal terms for virtual currencies and will soon submit a report that will also require crypto exchanges to create liability reserves. The Japanese administration has already instructed crypto exchanges to store customer investments in cold wallets, keeping them offline for greater security.

Wu Blockchain reported that Japan’s Financial Services Agency plans to require crypto asset exchanges to establish mandatory reserve funds to cover losses from unauthorized access or other outflow incidents, ensuring rapid compensation for customers. It added that the Financial System Council’s working group will include this measure in an upcoming report.

FSA Moves Toward Tighter Custody Rules as Crypto Regulation Bill Expected in 2026

Under existing rules, cryptocurrency exchanges do not need to follow special custody rules or set aside reserves to cover customer losses from hacking and unauthorized access. The lack of such reserves leaves customers exposed if an operational failure occurs, as there are no mechanisms to cover their losses. The new regulations aim to change this, enhancing investor confidence and trust among digital asset holders.

Despite the introduction of updated safety standards, experts caution that higher compliance costs could challenge smaller exchanges. However, they note that the approach aligns with global crypto regulation. According to experts, these security measures will bring standards closer to those of traditional finance, helping build trust in decentralized finance and the broader crypto markets.

By implementing mandatory liability reserves, the FSA also intends to alleviate the burden on exchange operators and is considering allowing insurance schemes to secure the compensation funds. The regulations are also part of a plan to allow assets to be returned to their respective customers if an exchange goes bankrupt. The plan is still in its early stages, with discussions underway to bring digital asset regulation under the Financial Instruments and Exchange Act. The implementation of mandatory liability reserves will be prioritized and will form the core of the new rules. The latest reports suggest that a bill to amend the Financial Instruments and Exchange Act is expected to be submitted to the ordinary Diet session in 2026.

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