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Bitcoinist 2025-11-25 22:00:30

Japan Tightens Crypto Regulations With Proposal for Compensation Reserves Amid Hack Risks

Japan is taking decisive action to strengthen investor protection in its rapidly growing crypto sector. Related Reading: Analyst Predicts 430% PEPE Price Rally If This Level Holds The country’s Financial Services Agency (FSA) is preparing a sweeping regulatory overhaul that would require crypto exchanges to maintain mandatory liability reserves, funds specifically set aside to compensate users in the event of hacks, thefts, or system failures. The move comes as Japan confronts rising digital-asset security breaches and seeks to align crypto oversight with traditional financial market standards. FSA Targets Liability Reserves to Shield Users From Hacks According to multiple reports from Japanese media, including The Nikkei, the FSA will introduce a legal framework obligating exchanges to create dedicated compensation reserves beginning in 2026. These reserves would function similarly to those required in the securities industry, where firms must set aside capital ranging from ¥2 billion to ¥40 billion (approximately $12.7 million to $255 million) depending on scale and risk. Japan’s crypto market, home to more than 12 million accounts, has suffered repeated security incidents, including the 2024 DMM Bitcoin breach , where attackers siphoned over 4,500 BTC through a vulnerability in a third-party wallet provider. Even the longstanding cold-wallet exemption, previously considered sufficient risk mitigation, will now be phased out as part of a broader tightening of custody rules. The FSA’s working group under the Financial System Council is reviewing legal definitions and preparing a report that will recommend mandatory reserves. The agency is also considering allowing exchanges to use insurance to cover part of the required liabilities, easing the financial burden on smaller platforms. New Rules Aim to Restore Trust After Years of High-Profile Breaches Japan’s renewed urgency reflects a decade of crypto-related failures, from the infamous Mt. Gox collapse in 2014 to the DMM Bitcoin and SBI Crypto breaches in 2024 and 2025. Analysts say the proposed reserves could restore trust by ensuring swift compensation in the event of incidents, even during exchange bankruptcies. Under the new framework, exchanges would be required to segregate customer assets, maintain audited reserve accounts, and submit to stricter risk assessments. A court-appointed administrator could oversee asset returns if an exchange fails, preventing prolonged legal battles like those faced by Mt. Gox creditors. Toward a More Secure and Mature Crypto Market? Japan’s regulatory overhaul extends beyond liability reserves. The FSA is also exploring new registration requirements for wallet-management and custodial service providers, after several breaches were traced to outsourced systems. Additionally, policymakers aim to reclassify crypto assets under the Financial Instruments and Exchange Act , paving the way for regulated crypto ETFs, investment trusts, and improved tax treatment. Related Reading: $11 Million Crypto Vanishes In San Francisco Fake-Delivery Heist If approved in the 2026 Diet session, the reforms would position Japan among the world’s most secure digital-asset jurisdictions, striking a balance between investor protection and support for responsible industry growth. Cover image from ChatGPT, BTCUSD chart from Tradingview

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