Key Points :
- Japan’s Financial Services Agency (FSA) is considering a mandatory crypto reserve requirement for exchanges to ensure quick compensation for hacking losses.
- The proposal would allow faster payouts without waiting for administrative approval.
- Insider trading regulations and exchange governance rules are being discussed to strengthen market integrity.
- Banks’ ability to hold crypto assets is being incrementally liberalized.
- Changes target investor protection and aligning crypto markets with traditional financial standards.
Introduction: Why This Matters
Japan’s Financial Services Agency (FSA) announced on February 12, 2026, that it is seriously considering the introduction of a new responsibility reserve fund system for licensed crypto asset exchange operators. This represents one of the most significant regulatory developments in the global digital asset space, aligning Japan with emerging global trends toward stronger oversight and financial protections in crypto markets.
Japanese regulator discussions focus on safeguarding customer assets, improving market transparency, and promoting sustainable institutional participation in digital asset markets. These developments are likely to influence investor confidence and exchange competitiveness, both domestically and internationally.
1️ The New Responsibility Reserve Fund: A Shift from Reactive to Proactive Protection
The most consequential proposal is for crypto exchanges to maintain a dedicated reserve fund — similar to capital requirements in traditional securities — designed to compensate users quickly in the event of a hacking or theft incident.
Under the existing legal system, responsibility reserves apply mainly to securities firms. When a securities accident happens, funds are used to compensate customers, but only if the firm is legally at fault and after administrative approval. With crypto hacks — often external attacks — the existing framework has proven slow and ineffective.
The FSA’s proposal would require exchanges to set aside a reserve based on the volume of assets held in cold wallets (offline storage). If an exchange suffers a security breach, it could use its reserve fund to compensate users without waiting for government approval, vastly speeding up restitution.
This represents a shift from “compensation after the fact” to “preparedness in advance”.
Supporters argue this could reduce the risk of prolonged compensation delays like those seen in historic incidents.
2️ A Closer Look: How the Reserve Fund Might Work
Under the new system:
- Operators must maintain liquid reserves calibrated to their cold wallet assets.
- Exchanges may use a combination of on‑balance reserves and cyber insurance to avoid excessive financial burden.
- The goal is to balance effective investor protection with operational feasibility.
The FSA has not yet finalized exact numerical reserve requirements. However, early proposals suggest a tiered requirement based on asset holdings and risk profiles.
For many exchanges, this would be the first time they must maintain reserves specifically earmarked for hack compensation — a step that could reshape operational risk management in the industry.
3️ Lessons from Mt. Gox and Coincheck
Past hack events are central to understanding why this reform is being considered:
Mt. Gox (2014)
One of the most infamous crypto exchange breaches in history, Mt. Gox lost hundreds of thousands of bitcoins due to poor security practices. Compensation for users was handled through bankruptcy proceedings, dragging out for years while customers waited for restitution.
Coincheck (2018)
At the time, Japanese law did not impose a strict legal obligation to compensate users after a hack. Coincheck chose to repay users voluntarily using its own funds, but the incident highlighted severe regulatory gaps — particularly surrounding cold wallet assets, which were not covered by the legal compensation requirement.
These high‑profile breaches exposed how insufficient existing protections are for crypto custodial losses. Cold wallets, once considered nearly impenetrable, have seen sophisticated attacks involving social engineering and key theft. Regulators now recognize that no storage method is entirely immune, and a new safety net is needed.
4️ Boosting Market Integrity: Insider Trading Rules for Crypto
In addition to reserve funds, the working group is debating the introduction of insider trading regulations for digital assets. Today, traditional markets tighten rules to prevent trading based on non‑public information. Crypto markets, however, remain largely unregulated in this area.
The proposals would:
- Apply insider trading rules to assets listed or pending listing on registered exchanges.
- Cover decentralized exchanges (DEXs) and peer‑to‑peer transactions.
- Include new definitions for “material non‑public information” tailored to digital asset events.
Regulators acknowledge challenges: applying insider trading rules to decentralized networks or assets without a central issuer (like Bitcoin) raises enforcement issues. However, proponents argue this would improve fairness and trust, particularly for retail investors.
5️ Evolving Banking Participation in Crypto
Another major discussion point is whether banks and insurance companies should be allowed to hold crypto assets:
- The FSA is considering a gradual relaxation of limits, allowing financial institutions to hold crypto for investment purposes under strict risk management.
- Full engagement in crypto markets — such as trading or custody services — remains cautious.
This incremental approach mirrors global debates on bank involvement in digital assets. Basel Committee risk weights and capital requirements may affect practical participation.
Even symbolic regulatory approval for banks to hold crypto assets could unleash a wave of institutional demand.
6️ Strengthening Exchange Governance and Oversight
The working group also addressed other key enhancements:
- Clear eligibility standards for assets an exchange may list.
- Risk assessments tied to customer profiles and trading activity.
- Enhanced surveillance and monitoring requirements.
- Stronger legal obligations for custodial security and user asset segregation.
These changes align with broader trends in Europe and the US to tighten governance and market controls without stifling innovation.
7️ Transition Timeline and Market Impact
If the proposals move forward, the timeline could be:
- 2026: Legislative drafting and parliamentary submission.
- 2027–2028: Phased implementation of new regulatory requirements.
Industry observers note that while enhanced protections strengthen trust and competitiveness, smaller firms may struggle with compliance costs. This could accelerate consolidation in Japan’s exchange landscape.
For investors, these changes reinforce the importance of evaluating an exchange’s security, financial strength, and insurance posture before opening accounts.
Conclusion: What This Means for Crypto Investors
Japan’s proposed crypto rules mark a paradigm shift toward structured, transparent, and safer markets. While requiring reserve funds imposes new costs on exchanges, it could substantially increase investor confidence and reduce compensation delays after hacks.
For entrepreneurs, developers, and institutional players, Japan’s approach signals a maturing regulatory environment that balances innovation with accountability. Investors seeking new assets and revenue streams should closely follow these reforms, as they may influence global regulatory standards.
