Japan Tightens Grip: Crypto Custody Providers Must Now Register Under New Rules

Regulators drop the hammer—Tokyo's playing for keeps in crypto.

Japan's Financial Services Agency (FSA) just rewrote the rulebook for digital asset guardians. No more gray areas: custody services now face mandatory registration, putting legacy finance and crypto natives on equal footing. The move comes as Bitcoin flirts with $100K and institutional players demand clarity.

Behind the bureaucracy? A calculated power grab. Traditional banks have lobbied for years to force crypto firms into the same compliance straitjacket they’ve worn for decades. Now they’ve got their wish—just in time for the next bull run.

Expect fallout. Smaller custody providers might fold under compliance costs, while incumbents like Bitbank and Liquid smile through gritted teeth. Meanwhile, DeFi protocols—technically exempt—are already mocking the rules with anonymous node networks.

One FSA insider put it bluntly: 'We’re not here to kill innovation. We’re here to make sure when investors lose their shirts, it’s because of market forces—not incompetence.' How very... reassuring.

Closing thought: Nothing unites regulators and crypto bros like watching hedge funds fumble self-custody.

• Japan’s top financial regulator intends to introduce a new registration regulation of crypto custody and trading service providers.
• This proposal comes after the DMM Bitcoin hack, which revealed security vulnerabilities in the third-party custody business processes.
• The new structure will increase Japan’s supervision of crypto-related operations and help introduce stablecoins to leading banks. 

Japan’s Financial Services Agency (FSA) is preparing a new rule for crypto custody and trading management service providers. The rule would require them to register with authorities before offering their services.

FSA Tightens Rules on Crypto Custody

The measure aims to strengthen oversight across Japan’s growing digital asset industry. It will also close regulatory gaps that allowed third-party firms to operate without strict supervision.

According to a Nikkei report, the proposal was first discussed last week by a working group. The group operates under the Financial System Council, an advisory body to the Prime Minister.

The group supports mandating registration for custodians and trading managers handling digital assets on behalf of crypto exchanges. The FSA also wants exchanges to work only with providers that are officially registered.

Existing crypto exchanges are already mandated to ensure the security of customer funds in Japan, such as cold wallets for user deposits. However, this is not the same when dealing with third-party service providers who are in the crypto custody or running a trading business. According to regulators, the loophole WOULD cause system risks, thefts, as well as security failures, which would adversely affect investors and the market at large.

DMM Hack Caused Stricter Crypto Custody Oversight

The 2024 DMM Bitcoin hack, which caused a loss of approximately 48.2 billion yen or  $312 million in Bitcoin, is causing the agency to refocus. It was discovered that the attack originated with Ginco, a Japanese software company that operates the trading platform of DMM Bitcoin. The scandal revealed the vulnerabilities in the crypto regulation framework of Japan, which many had believed to be a strong one.

In the months to come, the FSA will come up with a comprehensive report regarding the proposal. The amendments to the Financial Instruments and Exchange Act will be presented by the government at the Ordinary Diet session next year. The majority of the working group members regard the changes as critical since they will help make digital-asset operations clear and secure.

Japan Progresses Stablecoin and Custody Rules

Besides regulating security, the Japanese authorities are promoting the use of stablecoins to modernize their domestic finance system. The FSA gave the full go-ahead on the first yen-linked stablecoin in the country (JPYC), which went live a short time later last month.

Additionally, the agency supported a pilot program on stablecoins where the three largest banks in Japan (Mizuho, MUFG, and SMBC) initiated the adoption of blockchain payments. Japan has been identified to have some of the most stringent crypto regulations in the world.

This crypto custody registration is yet another step that will lead to an open, accountable supervisory framework for digital currency. Japan would become one of the first leading economies to oversee companies handling back-end crypto trading and custody.
When it becomes effective, the rule will strengthen regulation and investor protection in the country’s digital asset market.