Japan has once again moved to the forefront of digital asset regulation as Japan plans new reserve rules for crypto exchanges to guard against hacks and protect investors. After a series of high-profile security breaches and exchange failures over the past decade, Japanese regulators are tightening expectations around how platforms hold, segregate, and report customer funds. The aim is simple but ambitious: make sure that when users deposit crypto on an exchange, those assets are properly backed, properly stored, and still there even if something goes horribly wrong.
Japan already has some of the strictest rules in the world for cryptoasset exchanges, born from painful lessons like the Mt. Gox and Coincheck incidents. Today the Financial Services Agency (FSA), Japan’s main financial regulator, is looking to go even further. New proposals and amendments linked to the Payment Services Act and related laws seek to strengthen custody rules, introduce more detailed reserve requirements, and clamp down on weak security practices, especially after large domestic hacks such as the DMM Bitcoin incident in 2024.
As Japan plans these new reserve rules for crypto exchanges, it is not only responding to past failures, but also trying to build a more competitive and trustworthy digital asset hub. Stricter reserves and custody could attract serious institutional investors and everyday users who want both innovation and safety. At the same time, exchanges will face heavier operational burdens, forcing a new wave of consolidation and professionalization across the industry. In this article, we will explore why Japan is pushing for these changes, what the new reserve and custody frameworks may look like, how they connect to stablecoin regulation, and what all of this means for exchanges, traders, and the global crypto market.
Why Japan is pushing new reserve rules for crypto exchanges
A history shaped by major hacks
Japan’s regulatory stance on crypto cannot be understood without looking back at its history with exchange hacks. The country was home to Mt. Gox, at one point the world’s largest Bitcoin exchange, which collapsed after losing hundreds of thousands of BTC in 2014. A few years later, the Coincheck hack in 2018 saw roughly 58 billion yen worth of NEM tokens stolen, prompting a wave of business improvement orders and stricter supervision of domestic exchanges. More recently, the DMM Bitcoin hack in 2024 exposed major weaknesses in outsourced trading and custody systems.
The incident pushed regulators to re-examine not just exchanges themselves, but also the third-party service providers that manage wallets, trading, and storage infrastructure. That has led directly to new proposals that require custodians and trading technology providers to register with the FSA before offering services to exchanges, reinforcing the idea that security failures anywhere in the chain are a systemic risk. These events have taught Japan’s regulators a consistent lesson: crypto hacks are not rare accidents, but recurring structural failures that need strong rules on reserves, custody, and governance.
Protecting users from insolvency and mismanagement
Alongside hacks, the collapse of international exchanges such as FTX highlighted how user funds can disappear when platforms mix customer assets with their own operational accounts or use them as collateral. Japan was relatively insulated from some of these global failures because local law already required segregation of customer assets, but policymakers saw them as a warning nonetheless.
As Japan plans new reserve rules for crypto exchanges to guard against hacks, it is also targeting broader financial risks. The FSA wants clearer, more enforceable requirements that ensure exchanges hold enough high-quality assets to cover user balances, keep them in secure custody, and provide transparency about where and how they are stored. The idea is to prevent both outright theft and slower forms of mismanagement that leave customers exposed when things go wrong.
How Japan’s existing crypto framework sets the stage
From early friendliness to stricter oversight
Japan was one of the first major economies to create a comprehensive legal category for crypto assets, amending the Payment Services Act in 2016 and enforcing it in 2017. That framework gave exchanges a path to registration but was initially relatively friendly to startups and new entrants.
After the Coincheck hack, the tone changed. The government tightened operational rules, increased inspections, and gave the FSA more power to issue guidance and sanctions. By 2020, amendments to the Payment Services Act and the Financial Instruments and Exchange Act clarified definitions of cryptoasset exchange services, custody, and security tokens, while also strengthening AML/CFT requirements and consumer protection.
In parallel, Japan introduced one of the world’s earliest stablecoin regulations in 2022, restricting issuance of yen-linked “digital money-type stablecoins” to banks, trust companies, and licensed fund transfer service providers and requiring robust collateral management and user redemption rights. These layers of regulation created a solid foundation. Now, as Japan plans new reserve rules for crypto exchanges, regulators are building on that base rather than starting from scratch.
Segregation and onshore custody as core principles
A central theme of Japan’s crypto regime is that user assets must be protected even if an exchange fails. That has led to strict requirements for segregation of customer funds and, increasingly, for onshore custody of crypto and stablecoins so they are not trapped in foreign bankruptcy proceedings. A recent bill updating the Payment Services Act, for example, gives authorities explicit power to order exchanges to keep all spot crypto and stablecoin assets in domestic custody to improve bankruptcy protection and user security. These ideas are now being refined and extended into more detailed reserve rules, specifying where, how, and in what form customer assets and backing reserves must be held.
What “new reserve rules” could mean in practice
Strengthening custody, cold storage, and wallet management
When people hear “reserves,” they often think of bank balances or fiat backing. In the context of crypto exchanges, reserve rules also cover how coins and tokens are stored technically. Japan’s FSA is increasingly focused on ensuring that the majority of customer assets are kept in cold storage—offline wallets that are much harder to hack—while limiting the amount held in hot wallets connected to online systems.
After high-profile incidents like the DMM Bitcoin hack exposed vulnerabilities in outsourced and automated trading systems, Japanese regulators have signaled that any firm providing wallet or trading infrastructure must meet strict standards and register with the FSA. Exchanges may be required to hold a specified percentage of customer assets in cold wallets that they directly control, with clear internal controls, multi-signature authorization, and regular third-party security audits. These new reserve rules for crypto exchanges aim to make remote exploitation much harder and ensure that even if an online system is compromised, most assets remain safe.
Capital and reserve backing for user claims
Another dimension of reserve rules concerns the ability of exchanges to meet user withdrawal requests in full and on demand. Japan is moving toward models where exchanges must maintain reserves equal to at least 100% of customer balances, held in assets that are safe, liquid, and clearly segregated from company capital.
A similar logic already applies to certain stablecoin issuers under Japan’s framework, which requires them to hold fully backed reserves and manage collateral under strict rules. Extending this thinking to exchanges means that, in a crisis, users are not forced to compete with other creditors; their assets are already ring-fenced and backed by verifiable reserves.
In practice, this could involve detailed reporting to the FSA on wallet balances, fiat bank accounts, and any third-party custodial arrangements. Exchanges might need to demonstrate that reserves are not invested in high-risk instruments and that there is a clear path to return assets to users quickly if operations are disrupted.
Registration and oversight of custodians and service providers
Japan’s recent proposals go beyond the exchanges themselves. New rules would require crypto custody providers, trading system developers, and other service firms working with exchanges to register with the FSA and comply with security, reporting, and governance standards.
This expanded perimeter is crucial because many hacks exploit weaknesses in third-party software, cross-chain bridges, or outsourced wallet management rather than in the exchange’s own code. By bringing these actors under regulatory oversight and aligning their duties with reserve and custody rules, Japan aims to create a more secure, end-to-end ecosystem.
Guarding against hacks: From theory to real protection
Reducing the attack surface with better reserves and custody
Reserves might sound like a financial concept, but in crypto they are deeply connected to cybersecurity. If an exchange keeps large amounts of assets online with limited controls, a single exploit can lead to catastrophic losses. By contrast, if most customer assets are reserved in cold storage, protected by multiple layers of authorization and offline hardware, the scope of any possible hack is sharply limited.
Japan’s emerging framework encourages exactly this defense-in-depth approach. Reserve rules that emphasize cold storage, multi-sig wallets, and transparent onshore custody directly reduce the attack surface. Even if part of an exchange’s system is compromised, hackers cannot easily drain the bulk of user funds.
Learning from past incidents
Past hacks in Japan and abroad illustrate the consequences of poor reserve management. In several cases, exchanges kept excessive balances in hot wallets, lacked internal separation of duties, or relied on opaque third-party services without rigorous oversight. When attackers found a weakness, the result was a total loss of user deposits.
By planning new reserve rules for crypto exchanges to guard against hacks, Japanese regulators are explicitly trying to prevent those scenarios. The combination of strict licensing, clear segregation of customer assets, and a push toward robust custody standards makes it harder for the same mistakes to be repeated.
Impact on crypto exchanges operating in Japan
Higher compliance costs but stronger credibility
For exchanges, these rules will not come free. Maintaining larger reserves in safe, low-risk forms means less room for aggressive investment or internal trading. Building secure cold storage infrastructure, hiring compliance teams, and coordinating with registered custody providers all increase operational costs. Some smaller platforms may decide that the cost of full compliance is too high, leading them to exit the Japanese market or merge with larger players.
Others may pivot to roles as intermediaries or technology providers rather than full exchanges. At the same time, those that remain and meet the new standards can position themselves as premium, trusted venues under one of the world’s most rigorous regulatory regimes. In the long run, this could help Japan attract serious investors who value security and compliance as much as innovation.
Competitive edge in a global regulatory race
Globally, regulators are still grappling with how to oversee crypto exchanges, stablecoins, and DeFi platforms. While some jurisdictions emphasize light-touch regimes to attract volume, others, like Japan, prioritize user protection and stability. By setting clear reserve requirements and custody standards, Japan could gain a competitive edge as a safe jurisdiction for digital assets, especially for institutional investors. If users know that exchanges in Japan must hold fully backed reserves, segregate assets, and comply with detailed cybersecurity rules, they may prefer Japanese-licensed platforms over loosely regulated alternatives.
What this means for crypto users and traders
Greater confidence in exchange solvency
For everyday users, the most immediate benefit of the new reserve rules is peace of mind. When Japan plans new reserve rules for crypto exchanges to guard against hacks, it is effectively promising that deposits will be more secure, both from cyber attacks and from mismanagement or insolvency.
If reserves are properly audited, segregated, and held in safe custody, users can be more confident that their assets will remain accessible even in market stress or if the exchange faces financial trouble. While no regulatory framework can provide a complete guarantee, Japan’s model aims to get as close as realistically possible.
Practical implications for account holders
In practice, users might notice changes such as clearer disclosure of how their assets are stored, more detailed risk warnings, or new options to hold funds in different custody arrangements. Exchanges may offer improved insurance coverage, implement stronger identity checks, and limit certain high-risk services that could endanger reserves. Traders who value speed and leverage might feel some friction, as very aggressive products or lightly controlled hot-wallet balances become less common. But for most long-term users, the trade-off is likely to be positive: slightly more structure in exchange for significantly more security.
The balance between security and innovation
Guardrails that support, not kill, innovation
A common concern in the crypto community is that strict regulation stifles innovation. Japan’s approach suggests a different vision: set tough standards for custody, reserves, and transparency, while still allowing a wide range of products and services to develop on top of those safeguards. Recent reforms have actually opened doors in areas like trust-type stablecoins, intermediary frameworks that allow smoother collaboration between exchanges and apps, and more flexible business models—so long as they operate within a secure, compliant perimeter. By planning new reserve rules specifically to guard against hacks, rather than banning risk altogether, regulators are trying to create a safer sandbox where Web3, DeFi, and tokenization projects can grow.
A model other jurisdictions may study
As other countries wrestle with their own exchange collapses and hacks, Japan’s evolving framework is likely to be studied as a potential template. Features like mandatory segregation, onshore custody, detailed reserve disclosure, and registration of custodians could influence rulemaking in Europe, Asia, and the Americas. If that happens, crypto users worldwide could benefit from safer infrastructure, even when they never trade directly on a Japanese platform.
Conclusion
Japan’s decision to move ahead with new reserve rules for crypto exchanges to guard against hacks is the latest step in a regulatory journey shaped by both painful lessons and ambitious goals. By focusing on robust reserves, secure custody, and rigorous oversight of both exchanges and third-party service providers, the FSA is trying to ensure that the next major hack does not wipe out user funds or destabilize the domestic crypto market.
These changes will raise the bar for exchanges operating in Japan, increasing compliance costs and pushing the industry toward more professional, well-capitalized players. But they also promise clear benefits: better protection for users, stronger confidence in the solvency of platforms, and a more attractive environment for institutional involvement.
In a world where hacks and collapses still make headlines, Japan’s approach offers a blueprint for how to balance crypto innovation with real, enforceable safeguards. For traders, investors, and builders, understanding this model is essential—not only for navigating the Japanese market, but also for anticipating how global regulation may evolve in the years to come.
FAQs
Q: What exactly are “reserve rules” for crypto exchanges in Japan?
Reserve rules are regulatory requirements that dictate how crypto exchanges must hold and protect customer assets. In Japan, this includes full segregation of user funds from company assets, maintaining sufficient reserves to cover all customer balances, and holding most crypto in secure custody such as cold wallets. The goal is to ensure users can recover their funds even if an exchange is hacked or becomes insolvent.
Q: Why is Japan tightening reserve rules now instead of earlier?
Japan already had strong regulations, but recent incidents, including the DMM Bitcoin hack, highlighted vulnerabilities in third-party systems and custody arrangements. These events pushed the FSA to refine and expand its framework, focusing more on reserve quality, onshore custody, and mandatory registration for custodians and service providers that work with exchanges.
Q: How will the new reserve rules guard against hacks?
By requiring exchanges to keep most customer assets in cold storage, use secure multi-signature wallets, and work only with registered custody providers, the rules significantly reduce the amount of crypto exposed to online threats. Even if hackers breach a hot wallet or trading system, they are far less likely to access the majority of user funds, which remain in offline, controlled reserves.
Q: Will these rules make trading on Japanese exchanges more expensive or slower?
Compliance costs for exchanges will likely increase, which may indirectly affect fees or the range of services offered. Some high-risk, highly leveraged products could become less common. However, for most users, day-to-day trading should remain similar, with the main difference being stronger protection of their deposits and clearer information about how their assets are stored and backed.
Q: Could other countries adopt similar reserve rules for crypto exchanges?
Yes. As governments around the world seek to prevent exchange collapses and hacks, many are watching Japan’s regulatory approach closely. Elements such as full asset segregation, onshore custody, detailed reserve disclosure, and oversight of custodians could be adapted into other legal systems, potentially leading to more consistent global standards for crypto security and investor protection.
