Japan Introduces Crypto Reserve Requirements to Bolster Investor Protection

Japan's Financial Services Agency (FSA) is set to mandate domestic cryptocurrency exchanges to maintain dedicated reserves for potential liabilities, marking a significant shift in the country's regulatory framework. The move aims to enhance investor protection by ensuring compensation for losses due to hacks, system failures, or other security breaches. Currently, exchanges are only required to store customer assets in cold wallets without liability coverage obligations.

The FSA plans to submit the proposal to parliament next year, aligning with broader reforms under Japan's crypto reserve regulation. These changes include classifying digital currencies under the Financial Instruments and Exchange Act, imposing a flat 20% tax on gains, and advancing a yen-backed stablecoin initiative with major banks.

Market confidence is expected to rise as reserve funds create a financial buffer against security incidents. The regulatory tightening reflects Japan's proactive stance in harmonizing crypto assets with traditional financial products while safeguarding investor interests.