Japan Mulling New Rules for Crypto Custodians and Service Providers

Japan’s Financial Services Agency (FSA) is planning new rules to tighten oversight of digital asset infrastructure by proposing new registration rules for crypto custodians and trading services providers.

The new registration rules will require crypto firms to register with regulators before working with cryptocurrency exchanges.

Japan’s FSA Proposes New Framework

Japan’s Financial Services Agency (FSA) is proposing a regulatory framework that requires digital asset custodians to register with regulators before providing services to cryptocurrency exchanges. The proposal aims to prevent security breaches like the DMM Bitcoin hack. Exchanges will also be required to use only the systems developed by the registered entities.

Japan’s current regulatory framework requires cryptocurrency exchanges to comply with strict requirements to safeguard deposits. This includes storing client assets in cold wallets. However, external service providers have been given a far more lenient approach. Regulators believe this has created a security gap, putting exchanges at risk of hacks. The problem was amplified after the DMM Bitcoin hack in 2024. The hack was one of Japan’s largest crypto thefts, with 48.2 billion yen ($312 million) worth of BTC stolen. Authorities ultimately traced the breach to Ginco, a Tokyo-based software firm managing DMM’s trading systems. This highlighted the weaknesses in outsourced services that could put cryptocurrency platforms at greater risk.

Broad Support

According to sources, a significant majority of the FSA’s working group supports the new registration system, emphasizing the need for clear regulations to support the country’s growing crypto ecosystem. The FSA will compile a formal report and submit the proposed amendments to the Financial Instruments and Exchange Act during the 2026 ordinary Diet session. The move comes as regulators increase efforts to maintain a delicate balance between innovation and investor protection.

The FSA recently approved Japan’s first yen-backed stablecoin, the JYPC, and also confirmed plans to support a stablecoin pilot project in partnership with the country’s three largest banks: Mizuho, MUFG, and SMBC. The move is part of the FSA’s broader digital finance agenda.

The Payment Innovation Project (PIP)

Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group, and Mizuho Financial Group will spearhead the joint stablecoin pilot. The project is the first under the FSA’s Payment Innovation Project (PIP). The initiative aims to enhance the payment efficiency and corporate productivity across Japan’s financial sector. The participants will develop a shared framework for yen-backed stablecoin issuance, facilitating seamless transfers between institutions under unified standards. The initiative could also introduce a dollar-pegged stablecoin to compete with the USDT and USDC stablecoins.

The project will also see participation from Mitsubishi Corporation, Progmat, and Mitsubishi UFJ Trust and Banking Corporation. Mitsubishi Corporation will act as a business partner, while Progmat will be involved with the technical infrastructure, and Mitsubishi UJF Trust and Banking Corporation for trust functions. Pilot testing is expected to begin in 2025.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice