The cryptocurrency sector in Japan has been subject to robust regulation for several years, but the authorities want to go further. The Financial Services Agency (FSA) is considering introducing a new registration requirement for third-party providers offering custody or trading services for cryptocurrencies. The aim of this initiative is to address gaps in the regulatory framework and provide greater protection for investors.
A need for stronger regulation
Although exchange platforms are currently subject to strict requirements, including the use of cold wallets to store users’ funds, there is a regulatory gap concerning external service providers that work with these platforms. The FSA intends to address this by introducing a registration and supervision framework for these third parties.
A key motivation behind this move is to prevent a repeat of the large-scale hack that hit a Japanese platform in 2024, resulting in losses of several hundred million dollars. This incident highlighted weaknesses in the crypto ecosystem and accelerated the push for reform.
The key points of the proposed reform
The measures under consideration include:
- Introducing a mandatory licence or registration requirement for any third-party provider involved in the custody or trading of cryptocurrencies on behalf of an exchange.
- Strengthening security, transparency and governance standards for these service providers to protect users’ funds and ensure transactions are traceable.
- A commitment to ensuring that the entire chain — from exchanges to associated service providers — meets standards comparable to those of the traditional financial sector.
Implications for market participants
This announcement marks a significant increase in obligations for crypto exchanges and service providers:
- The affected companies will need to assess whether they fall within the scope of the reform and review their compliance arrangements.
- This could lead to additional costs relating to audits, internal controls and certifications, but it could also offer an advantage in terms of credibility with institutional or international investors.
For users, the reform appears to offer enhanced reliability guarantees. Japan continues to position its crypto regulatory framework as one of the most rigorous in the world.
Why Japan?
Japan is already recognised as one of the world’s most advanced jurisdictions when it comes to cryptocurrencies. By taking the lead in regulating stablecoins and exchange platforms, the country is demonstrating its proactive approach. This new reform reaffirms its commitment to combining technological innovation with enhanced financial security.
In summary
Japan is planning to impose registration requirements and stricter regulations on third-party crypto custody and trading service providers. This initiative is intended to complement the existing requirements for exchange platforms, ensuring better protection for users and more comprehensive oversight of the crypto ecosystem.
