Japan’s FSA Proposes Mandatory Hack Loss Reserves for Crypto Exchanges

Japan’s Financial Services Agency (FSA) is preparing legislation that would require crypto exchanges to maintain liability reserves to safeguard users against losses from hacks or operational failures.

The proposal is expected to reach parliament in 2026. Under the planned framework, exchanges would be required to hold reserves similar to those mandated for traditional securities firms.

According to The Nikkei, these reserves currently range from ¥2 billion to ¥40 billion, depending on trading volume.

Previously, crypto platforms were exempt from such obligations because they store customer assets in offline cold wallets. However, the FSA now believes cold storage alone no longer provides sufficient protection as cyberattacks become increasingly sophisticated.

Stronger Customer Protections in Bankruptcy Cases

Alongside the reserve mandate, the FSA seeks to establish clearer procedures for returning assets in the event of an exchange collapse. Specifically, the proposed rules would permit court-appointed administrators to oversee customer payouts, reducing confusion and delays seen in previous bankruptcy cases.

These measures aim to bolster investor confidence and facilitate quicker resolution during insolvency events.

Security Breaches Drive Push for Tighter Regulations

Japan’s renewed focus on exchange safety follows a series of high-profile incidents. The most notable remains the 2014 Mt. Gox disaster, in which hackers stole 850,000 BTC. The repayment process, which began only in 2024, will continue until October 2026, symbolizing the industry’s past vulnerabilities.

More recent breaches have reinforced the urgency. In May 2024, DMM Bitcoin lost 4,502 BTC, about $305 million, after North Korean hackers compromised an employee connected to wallet provider Ginco.

Just last month, roughly $21 million in digital assets disappeared from addresses linked to SBI Crypto, with investigators identifying laundering activity through Tornado Cash and noting possible North Korean involvement. 

Together, these incidents have prompted regulators to push for a more robust protection framework.

Insurance Option Under Consideration

While reserve requirements could be costly, the FSA is exploring ways to reduce the burden on smaller platforms.

For instance, one approach under discussion would allow exchanges to purchase insurance instead of holding large cash reserves. Nevertheless, this proposal remains under review as policymakers refine the details of the new framework.

Additionally, the FSA is examining potential rules for companies providing crypto-management systems. In particular, these firms might be required to submit advance notices to regulators before offering services, a concept reported earlier this month by The Nikkei.

Finally, the regional threat landscape further underscores Japan’s regulatory push. According to Chainalysis’s mid-year 2025 update, the Asia-Pacific region has become the world’s second-largest target for crypto theft.

Among the countries most affected are Japan, Indonesia, and South Korea, thereby highlighting the importance of stronger domestic safeguards.