Japan Financial Services Agency takes strong action to close regulatory loopholes for digital asset service providers

Japan’s financial regulatory authorities are drafting a major policy adjustment. According to industry reports, the Financial Services Agency of Japan plans to introduce stricter regulations requiring service providers engaged in digital asset custody and trading management to file prior approval with the authorities. In the future, cryptocurrency exchanges will also be restricted to only cooperate with qualified third-party service providers.

This policy direction was a key topic at the Working Group Meeting of the Financial System Council on November 7, with participants generally expressing support for this approach.

Security Incidents Expose Regulatory Gaps

The direct trigger for the policy is a major security incident that occurred this year. In 2024, the well-known exchange DMM Bitcoin suffered approximately $312 million in losses due to security vulnerabilities in its outsourced technical partner Ginco. This incident exposed the current legal framework’s lack of sufficient regulation over third-party service providers—when user funds are stolen by hackers, responsibility boundaries are unclear, and preventive measures are relatively weak.

From Passive Remedies to Proactive Prevention

The core goal of the Financial Services Agency’s move is to close these regulatory loopholes. By requiring third-party service providers to register and undergo review in advance, the authorities can evaluate their security architecture, risk management, and emergency response plans before services go live, thereby preventing similar fund loss events rather than responding passively.

The new regulations will also set standards for exchanges when choosing partners—only service providers certified by the Financial Services Agency will be allowed to enter the exchange supply chain. This effectively builds a firewall across the entire industry.

Regulatory Progress and Future Outlook

The Financial Services Agency plans to formally submit the revision of the Financial Instruments and Exchange Act during the ordinary session of the National Diet in 2026 after completing relevant research and industry feedback. This means the new regulations could come into effect in 2026.

Simultaneously, Japan is opening up its stablecoin market. Recently, the Financial Services Agency approved the launch of the first Japanese yen stablecoin JPYC, and is supporting a pilot project for stablecoins jointly promoted by three major Japanese banks. Through strict regulation of third-party service providers and active promotion of domestic stablecoins, regulators are working to create a safer, more controllable digital asset ecosystem.