Japan mulls new rule limiting crypto custody to registered providers: report

Japan's Financial Services Agency (FSA) is considering a new system that would require digital asset custodians and trading management services to notify and register with authorities prior to offering their services to crypto exchanges.

According to a report from Nikkei, a working group under the Financial System Council, an advisory body to the Japanese Prime Minister, discussed the subject on Nov. 7. 

Under current regulations, crypto exchanges are required to maintain robust management of deposits, including storing user assets in cold wallets. However, Nikkei noted that no comparable rules exist for third-party service providers that work with exchanges.

The FSA plans to mandate that custody and trading services providers register with authorities and that exchanges use only systems provided by those registered custodians. This aims to address security loopholes that could lead to thefts or system failures, the report said.

Nikkei especially pointed out the DMM Bitcoin hacking incident in 2024, where around 48.2 billion yen ($312 million) worth of bitcoin was drained. The hacker's entry point was identified to be Tokyo-based software firm Ginco, to which DMM had outsourced its trading management.

According to the report, most members of the working group supported the proposed new system, calling for greater clarity in digital asset regulations.

The FSA plans to soon compile a report based on these discussions and aims to submit amendments to the Financial Instruments and Exchange Act during the 2026 ordinary Diet session, the report said.

Meanwhile, the FSA has been accelerating efforts to promote local stablecoin projects. Last month, the FSA approved the country's first yen-pegged stablecoin, JPYC, which launched soon after. 

Last week, the agency announced that it will support a stablecoin pilot project involving Japan's three major banks — Mizuho Bank, MUFG, and SMBC.