Japan Considers Limiting Crypto Custody to Authorized Providers

Japan’s Financial Services Agency (FSA) is evaluating a new framework that would require digital asset custodians and trading management providers to register with authorities and notify them before offering services to cryptocurrency exchanges.

A report by Nikkei highlighted that a working group under the Financial System Council, an advisory body to the Japanese Prime Minister, discussed the matter on November 7.

Under existing regulations, crypto exchanges must implement strict deposit management, including storing user assets in cold wallets. However, Nikkei noted that similar requirements do not currently apply to third-party service providers collaborating with exchanges.

The FSA intends to make it mandatory for custodial and trading service providers to register with the authorities, and for exchanges to use only systems provided by these registered custodians. The move is designed to close security gaps that could otherwise result in theft or operational failures, the report stated.

The Nikkei report also cited the 2024 DMM Bitcoin hack, in which approximately 48.2 billion yen ($312 million) in bitcoin was stolen. The breach reportedly occurred through Ginco, a Tokyo-based software firm that DMM had contracted for its trading management.

Most members of the working group reportedly supported the proposed system, emphasizing the need for clearer regulations around digital assets.

According to the report, the FSA plans to compile a summary of these discussions and aims to propose amendments to the Financial Instruments and Exchange Act during the 2026 ordinary Diet session.

In parallel, the FSA has been advancing initiatives to support domestic stablecoin projects. Last month, it approved Japan’s first yen-pegged stablecoin, JPYC, which was launched shortly thereafter.

Last week, the agency announced its backing of a stablecoin pilot project involving Japan’s three major banks, Mizuho Bank, MUFG, and SMBC.