Japan Forces Crypto Exchanges to Build War Chests Following Devastating Hacks

Tokyo slams the regulatory hammer down after exchange breaches leave investors reeling.

The Protection Mandate

Japan's Financial Services Agency mandates all cryptocurrency platforms to establish substantial reserve funds—creating the first national safety net for digital asset investors.

Security Wake-Up Call

Multiple high-profile exchange hacks trigger immediate regulatory action, forcing platforms to either build adequate reserves or face shutdown.

Because apparently waiting for the third major breach was the traditional approach—until investors started treating crypto like a high-stakes roulette wheel.

Japan's Financial Services Agency (FSA) plans to require cryptocurrency exchanges to maintain reserve funds for customer compensation in case of hacks or failures, Nikkei reported Tuesday.

The FSA will submit legislation to parliament in 2026 mandating exchanges establish liability reserves to cover losses from unauthorized access, ensuring rapid customer reimbursement, according to the report.

The move follows major security breaches including the ¥48.2 billion ($308.5 million) DMM Bitcoin theft in May 2024 and Bybit's $1.46 billion loss in February 2025.

Reserve amounts WOULD be modeled on securities firms, which currently hold ¥2 billion to ¥40 billion ($12.7 million to $255 million) depending on trading volumes, the article said. Exchanges may be allowed to use insurance to partially meet requirements.

Currently, Japanese exchanges must use cold wallet storage but face no reserve mandates when doing so. The proposed changes would close that gap. The framework would also require strict asset segregation and allow administrators to return customer funds during bankruptcy proceedings.

The reserve requirement is part of a broader regulatory overhaul that includes new registration rules for third-party custodians and potential reclassification of crypto assets under the Financial Instruments and Exchange Act, which would subject them to insider trading restrictions.

Japan's approach aligns with emerging global standards, as the EU and Hong Kong have implemented similar capital and insurance requirements for crypto platforms.