Japan’s Financial Services Agency Considers Updated Registration Regulations for Cryptocurrency Custodians and Service Providers

Japan’s Financial Services Agency (FSA) is taking steps to enhance regulation of the nation’s digital asset framework, suggesting new registration requirements for cryptocurrency custodians and trading service providers.

Key Takeaways:

• The FSA of Japan is proposing new registration mandates that will require crypto companies to register with authorities prior to engaging with exchanges.
• This proposal follows the 2024 DMM Bitcoin hack, which revealed weaknesses in outsourced trading management systems.
• The initiative is part of Japan’s broader efforts to bolster digital asset security.

A working group under the Financial System Council, which advises the Japanese Prime Minister, convened on Nov. 7 to deliberate on the proposal, as reported by Nikkei.

Japan Proposes Mandatory Registration for Crypto Custody, Trading Service Providers

The initiative would mandate that all third-party custody and trading management firms register with regulators before providing services to cryptocurrency exchanges.

Exchanges would then be obligated to utilize only systems created by registered entities.

Currently, Japan’s framework requires crypto exchanges to adhere to stringent standards for securing deposits, such as keeping client assets in cold storage, but similar regulations do not apply to external service providers.

Regulators assert that this has resulted in a security vulnerability, leaving exchanges susceptible to theft and systemic risks.

The urgency of the issue increased following the DMM Bitcoin hack in 2024, which was one of Japan’s largest cryptocurrency thefts, resulting in the loss of 48.2 billion yen ($312 million) in Bitcoin.

The breach was linked to Ginco, a Tokyo-based software company responsible for managing DMM’s trading systems, underscoring deficiencies in oversight of outsourced services.

Most members of the council’s working group reportedly supported the new registration framework, highlighting the necessity for clearer regulations in the expanding crypto landscape.

The FSA plans to compile a formal report and propose amendments to the Financial Instruments and Exchange Act during the 2026 ordinary Diet session.

This initiative coincides with Japan’s regulators intensifying efforts to balance innovation with investor protection.

Last month, the FSA approved the nation’s first yen-backed stablecoin, JPYC, and recently confirmed intentions to support a stablecoin pilot project involving Japan’s three largest banks: Mizuho, MUFG, and SMBC, as part of its comprehensive digital finance strategy.

Japan’s FSA Approves Joint Stablecoin Pilot by Three Major Banks

As reported, Japan’s FSA has sanctioned a collaborative stablecoin pilot involving Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group, and Mizuho Financial Group, marking the inaugural project under its new Payment Innovation Project (PIP).

The regulator indicated its support for the initiative, which seeks to improve payment efficiency and corporate productivity within Japan’s financial sector.

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The three banking institutions will establish a shared framework for the issuance of yen-backed stablecoins, facilitating seamless transfers between entities under standardized protocols.

The consortium may later introduce a dollar-pegged variant to compete with USDT and USDC.

The project will involve Mitsubishi Corporation as a business partner, Progmat for technical infrastructure, and Mitsubishi UFJ Trust and Banking Corporation for trust functions, with pilot testing anticipated to commence in November 2025.

This initiative aligns with Japan’s acceleration of its stablecoin adoption strategy. The Japan Virtual Currency Exchange Association (JVCEA) recently formalized a framework for self-regulating stablecoins, following the FSA’s approval of the country’s first yen-backed stablecoin, JPYC, last month.

The FSA described the new multi-bank pilot as an “innovative effort” that reflects Japan’s increasing drive to modernize its payments ecosystem.

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