Japan’s FSA to Mandate Liability Reserves for Crypto Exchanges to Enhance Security: Report

Japan's Financial Services Agency (FSA) is preparing regulations, requiring local digital asset exchanges to maintain liability reserves to protect users from hacks and other operational failures, according to a report by Nikkei.

The recommendation for cryptocurrency firms to establish liability reserve funds is expected to be included in a report by the Financial System Council, an advisory panel to the Financial Services Agency (FSA), following its upcoming meeting on Wednesday.

Implementing the directive to establish liability reserves could significantly enhance investor confidence, fostering greater trust in the local digital asset market and inviting broad range of players to the market, including both retail and institutions.

The move comes weeks after reports said that the FSA is mulling a reform to allow banks to hold and trade digital assets like bitcoin.

The FSA will submit the amendment to parliament in 2026 and is expected to reclassify cryptocurrencies as financial instruments under the Financial Instruments and Exchange Act.

If passed, exchanges will face insider-trading bans, stricter custody audits, and enhanced disclosure obligations, bringing crypto rules closer to those of traditional securities firms.

Japan’s JPYC recently debuted the world’s first yen-pegged stablecoin, which is fully redeemable digital yen backed by domestic deposits and Japanese government bonds (JGB).