Japan to Tighten Oversight of Third-Party Crypto System Providers

Japan’s Financial Services Agency (FSA) is preparing new regulations that would introduce a prior notification system for companies that provide management systems to crypto exchanges.

The proposal, discussed by a working group under the Financial System Council on November 7, aims to strengthen oversight of third-party service providers that handle exchange operations, according to a report from Nikkei.

Closing Gaps in Existing Crypto Regulations

Currently, Japanese crypto exchanges are legally required to follow strict deposit management practices, including storing user funds in cold wallets. However, no such framework exists for external companies offering custody or trading system support.

Subsequently, investigators discovered that the breach had originated at the Tokyo-based software company Ginco, which managed DMM’s trading system. This incident underscored vulnerabilities in outsourcing arrangements and highlighted the need for clearer accountability.

Broad Support Within the Financial System Council

Notably, most members of the Financial System Council’s working group supported the proposed registration system. They emphasized the importance of transparency and consistent regulatory standards for all system providers involved in crypto exchange operations.

Moreover, the FSA plans to prepare a comprehensive report based on the discussions and aims to propose revisions to the Financial Instruments and Exchange Act at the 2026 ordinary Diet session, the report added.

Japan Expands Focus to Stablecoins

Beyond custody reform, the FSA is advancing efforts to promote domestic stablecoin initiatives.

For instance, in October 2025, the agency approved JPYC, Japan’s first yen-pegged stablecoin, which launched shortly afterward. Furthermore, it recently announced support for a pilot stablecoin project involving MUFG, SMBC, and Mizuho Bank.

Ultimately, these developments signal the regulator’s broader strategy to achieve a balance between innovation and robust oversight in Japan’s rapidly evolving digital asset ecosystem.