Japan’s Financial Services Agency (FSA) plans to require crypto exchanges to maintain customer compensation reserves in cases of hacks or operational failures, Nikkei reported Tuesday.

The FSA will submit a bill to parliament in 2026 mandating exchanges to establish liability reserves covering losses from unauthorized access—aimed at ensuring swift reimbursement to affected users. This move responds to major security breaches, including the ¥48.2 billion ($308.5 million) DMM Bitcoin theft in May 2024 and Bybit’s $1.46 billion loss in February 2025.

Reserve amounts will mirror existing securities industry standards: Japanese broker-dealers currently hold ¥2–40 billion ($12.7–255 million), scaled by trading volume. Exchanges may be permitted to use insurance to partially satisfy requirements.

Currently, Japanese crypto exchanges must store assets in cold wallets—but face no reserve mandates. The proposed rules close this gap and mandate strict asset segregation, enabling customer fund recovery during bankruptcy proceedings.

This initiative is part of a broader regulatory overhaul, including mandatory third-party custodian registration and potential reclassification of digital assets under the Financial Instruments and Exchange Act—bringing crypto under insider trading restrictions.

Japan’s approach aligns with global trends: the EU and Hong Kong have enacted similar capital and insurance requirements for digital asset platforms.

VECS Commentary
This reflects regulatory maturity: rather than banning, Japan is reinforcing trust infrastructure. Yet the challenge lies in implementation—particularly in fair, transparent risk assessment. If reserve thresholds are set too high, local innovators face unsustainable operational burdens; if too low, customer protection remains vulnerable. The ideal solution is a tiered approach: reserve requirements scaled by business size, transaction volume, and technical security posture. Crucially, independent, periodic audits must be mandated—not merely for compliance, but to build long-term trust among users and global investors.