Japan’s Financial Services Agency (FSA) is tightening its grip on the country’s cryptocurrency industry, introducing plans to require pre-registration for custodial service providers that handle digital assets for crypto exchanges. The move comes in response to a growing number of security breaches and the need to strengthen Japan’s reputation as a regulated yet innovation-friendly crypto hub.
According to reports from Nikkei, the FSA is preparing a framework that would oblige all custodial and operational service providers—companies that store or manage digital assets on behalf of exchanges—to register with the agency before offering services. Under the proposed system, crypto exchanges will only be allowed to work with licensed and registered providers, ensuring a higher standard of security and accountability across the ecosystem.
This initiative follows the DMM Bitcoin hack in 2024, when attackers stole 48.2 billion yen (approximately $312 million) worth of Bitcoin. Investigations revealed that hackers infiltrated systems through Ginco, a Tokyo-based company managing transaction operations for DMM Bitcoin. The incident exposed regulatory blind spots—third-party service providers were not subject to the same strict requirements imposed on licensed exchanges, such as cold wallet storage for customer assets.
The FSA’s working group, part of the Financial System Council under the Prime Minister’s office, discussed the proposal extensively. Many members voiced strong support for the idea, emphasizing that outsourced custodial responsibilities need clearer legal boundaries. As one member put it, “If exchanges outsource asset management, their responsibility must be clearly defined, and additional safeguards must be in place.”
Beyond enhancing oversight, the proposal aligns with Japan’s broader efforts to classify cryptocurrencies as financial products. If approved, this classification would pave the way for crypto ETFs and introduce a fixed 20% tax rate on profits from digital assets—replacing Japan’s current high taxation structure that discourages institutional investment.
The FSA intends to finalize its discussions and prepare legislative amendments to the Financial Instruments and Exchange Act during the 2026 parliamentary session. The revised law would formally implement the registration requirement and strengthen consumer protections.
In parallel, the FSA is planning to establish a new bureau in the 2026 fiscal year to oversee crypto assets, digital finance, and the insurance sector, consolidating its supervision of the rapidly evolving financial technology space.
Additionally, Japan’s regulator is continuing to support stablecoin innovation. In a related move, the FSA recently approved JPYC, the nation’s first yen-backed stablecoin, already deployed on Ethereum, Avalanche, and Polygon networks. This shows Japan’s commitment to combining regulatory compliance with technological advancement in digital finance.
Conclusion: Japan’s proposed pre-registration system for crypto custodians represents a significant step toward closing security loopholes and ensuring that third-party providers meet the same regulatory standards as exchanges. With new laws expected in 2026, Japan aims to strike a delicate balance between financial security, innovation, and market growth, positioning itself as a global leader in responsible crypto regulation.
