Japan is taking bold steps to strengthen the security of its cryptocurrency ecosystem by requiring exchanges to hold liability reserves to compensate customers in the event of cyberattacks or security breaches. This move, spearheaded by the Financial Services Agency (FSA), aims to rebuild trust in the sector and offset lingering doubts following high-profile hacks and scandals.
Restoring Confidence After a Troubled Decade
The decision to mandate liability reserves comes against a backdrop of persistent security challenges, including the infamous 2014 Mt. Gox collapse. This event, which saw over 850,000 BTC disappear due to hacking, left lasting scars on Japan’s crypto sector. More recently, incidents such as the 2023 DMM Bitcoin hack, which led to a loss of 4,502 BTC (around $305 million), and the $21 million theft from SBI Crypto in 2025, highlight the urgent need for tighter regulations.
The FSA’s proposal would compel crypto exchanges to allocate reserves similar to those required by traditional securities firms. These reserves would range from $12.7 million to $255 million (¥2 billion to ¥40 billion), depending on trading volume. By removing the current exemption for offline cold wallets, the new framework ensures customer funds remain protected even in cases of bankruptcy, with court-appointed administrators handling repayment processes.
Stricter Oversight for Wallet Providers
Recognizing that wallet-management software has become a weak link, the FSA is also considering regulations for companies offering these systems. Vendors like Ginco, whose vulnerability contributed to the DMM Bitcoin hack, would be required to file advance notices with regulators. This added layer of supervision aims to raise the bar for security and accountability across the crypto ecosystem.
Liability Reserves as a Safety Net
Requiring liability reserves could serve as a financial safety net for users, much like insurance for traditional bank accounts. However, industry experts warn that this could increase operational costs for exchanges. To address these challenges, the FSA is exploring alternatives such as allowing exchanges to purchase insurance policies instead of maintaining full cash reserves.
Musheer Ahmed, founder of Finstep Asia, highlighted that higher-grade security standards, comparable to those in traditional finance, are essential. He also suggested that derivative-style insurance products could offer interim protection for customers, bridging the gap until comprehensive frameworks are in place.
A Regional Effort to Combat Crypto Theft
According to Chainalysis, the Asia-Pacific region ranks second globally in crypto thefts, with Japan, Indonesia, and South Korea constituting major targets. The FSA’s ongoing efforts to implement robust regulatory measures aim to position Japan as a leader in secure and transparent cryptocurrency operations.
For those seeking extra protection for digital assets, consider hardware wallets like the Ledger Nano X, a highly secure option to store your cryptocurrency offline. Hardware wallets can significantly reduce risks from online breaches and hacking.
As Japan continues to navigate the complex world of cryptocurrency, these new measures may set a precedent for other countries striving to balance innovation with security.
