Japan's FSA Considers New Registration Rules for Crypto Custodians and Service Providers

Japan’s FSA Weighs New Registration Rules for Crypto Custodians and Service Providers

Japan's Financial Services Agency (FSA) is taking steps to enhance the oversight of the nation's digital asset landscape by proposing new registration requirements for crypto custodians and trading service providers.

Key Takeaways:

The FSA's proposal mandates that crypto firms must register with regulators before collaborating with exchanges.
This initiative comes in response to the 2024 DMM Bitcoin hack, which revealed vulnerabilities in third-party trading management systems.
The effort is part of Japan's larger goal to improve the security of digital assets.

On November 7, a working group under the Financial System Council, which advises the Prime Minister, convened to deliberate on this proposal, as reported by Nikkei.

Mandatory Registration for Crypto Custodians and Trading Service Providers

The proposed plan would require all third-party custody and trading management companies to register with regulators prior to offering services to crypto exchanges. Consequently, exchanges would be mandated to utilize systems only from registered entities.

Currently, Japan's regulatory framework obligates crypto exchanges to adhere to strict standards for safeguarding deposits, including the use of cold wallets for client assets. However, similar regulations do not extend to external service providers, creating a security loophole that exposes exchanges to potential theft and system vulnerabilities.

This issue gained urgency following the DMM Bitcoin hack in 2024, where approximately 48.2 billion yen (around $312 million) worth of Bitcoin was stolen. Investigations traced the breach to Ginco, a software company based in Tokyo that managed DMM's trading systems, thereby highlighting the need for stricter oversight of outsourced services.

Most members of the working group reportedly expressed support for the new registration framework, underlining the necessity for clearer regulations in the expanding crypto ecosystem.

The FSA plans to prepare a formal report and submit proposed amendments to the Financial Instruments and Exchange Act during the ordinary Diet session of 2026. This initiative reflects the growing focus among Japan's regulators to balance innovation with investor protection.

Japan's FSA Approves Joint Stablecoin Pilot Project by Major Banks

The FSA has recently greenlit a joint stablecoin pilot project involving Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group, and Mizuho Financial Group. This marks a significant development under the new Payment Innovation Project (PIP).

According to the regulator, this initiative aims to improve payment efficiency and corporate productivity across Japan’s financial landscape. The three banking institutions will collaborate to establish a framework for issuing yen-backed stablecoins, facilitating seamless transfers between banks under consistent standards.

The consortium also plans to potentially develop a dollar-pegged version to compete with existing stablecoins like USDT and USDC.

Mitsubishi Corporation will serve as a business partner, while Progmat will provide the necessary technical infrastructure. Mitsubishi UFJ Trust and Banking Corporation will handle trust functions, with pilot testing slated to commence in November 2025.

This move is part of Japan's accelerated strategy for stablecoin adoption. The Japan Virtual Currency Exchange Association (JVCEA) has recently established a framework for self-regulating stablecoins, following the FSA’s approval of the country's first yen-backed stablecoin, JPYC, last month.

The FSA characterized the new multi-bank pilot as an "innovative effort," showcasing Japan’s ongoing drive to modernize its payment ecosystem.