Japan FSA plans to mandate liability reserves for crypto exchangesFSA is recalibrating Japan’s crypto approach

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.

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 billion and 40 billion yen in reserves. For crypto exchanges, the mandated reserve amount would depend on an assessment of trading volumes and past incidents, the report said.

Under the framework, the FSA would also allow exchanges to purchase insurance policies as a means to ease the financial burden of maintaining large reserves. A separate framework would be put in place to ensure the return of assets to customers in case the exchange operator goes bankrupt.

Crypto exchanges would have to segregate user assets from company holdings. At the same time, a lawyer or court-appointed administrator would be permitted to distribute assets to users if the management team is no longer in control of the platform.

A bill to formalize the rule is expected to be submitted to parliament during the 2026 ordinary session.

Japan’s approach is not without precedent, as some global crypto exchanges already have similar safeguards in place.

One of the most prominent examples is Binance, which maintains its Secure Asset Fund for Users , a publicly visible emergency insurance fund that is funded by a portion of trading fees. Elsewhere in India, crypto exchange CoinDCX has introduced the Crypto Investors Protection Fund that serves a similar purpose and is funded via a portion of the exchange’s revenue.

FSA is recalibrating Japan’s crypto approach

While the FSA is ramping up investor protection efforts and preparing to crack down on insider trading in crypto markets, it also wants to support the growing digital asset industry by making provisions that would allow for regulated crypto investment products to emerge.

To achieve this, the FSA has already released a proposal that would shift cryptocurrencies from under the Payment Services Act to the Financial Instruments and Exchange Act, placing them on par with traditional securities and paving the way for investment trusts, ETFs, and tax reforms that treat digital assets like stocks.