Japan Tightens Crypto Oversight: FSA Proposes Pre-Registration for System Providers

TLDR

• FSA to require crypto system providers to pre-register for security.
• DMM Bitcoin hack prompts tighter oversight on outsourced operations.
• New rules extend accountability to third-party crypto system firms.
• Japan pushes stablecoin adoption alongside stricter crypto controls.
• Balanced reform aims to secure innovation in Japan’s digital finance.

Japan’s Financial Services Agency (FSA) has proposed new rules targeting system providers under crypto asset regulation. The agency plans to introduce a pre-registration requirement for third-party firms managing crypto exchange operations. This move comes in response to increasing concerns over cybersecurity threats in the digital asset industry.

New Measures Target Crypto Management Systems

The FSA plans to strengthen crypto asset regulation by requiring prior registration of all companies offering systems to manage crypto transactions. This includes custody providers, trading software vendors, and other firms that support exchange operations but remain unregulated. Under the proposed change, only registered providers will be allowed to offer systems to crypto exchanges.

The proposal follows the hacking incident involving DMM Bitcoin, where ¥48.2 billion in bitcoin was stolen through a software provider. The agency found that DMM outsourced trade management to Ginco, which was exploited by hackers. This incident exposed regulatory gaps and pushed authorities to act quickly.

The working group under the Financial System Council reviewed the proposal during a session on November 7. Most members supported the registration system for service providers under crypto asset regulation. They emphasized the need to enhance system accountability and security in outsourced operations.

Exchange Accountability and System Security Strengthened

Current laws require exchanges to store assets securely, such as in offline cold wallets, under crypto asset regulation. Third-party service firms that manage these assets remain outside the law’s reach. This gap has led to high-profile breaches and weakened exchange security.

By requiring system providers to register, the FSA aims to ensure compliance and transparency across the crypto infrastructure. Exchanges will also bear responsibility for using only registered service providers. This dual approach will raise security standards and align system oversight with broader crypto asset regulation.

The FSA is preparing to submit a bill to revise the Financial Instruments and Exchange Act. Authorities intend to present this amendment at the 2026 ordinary Diet session. The upcoming report from the Financial System Council will finalize the legislative framework.

Stablecoin Support Expands with FSA Backing

The FSA has begun promoting stablecoin adoption through approved projects. In October, the agency greenlit the launch of JPYC, Japan’s first yen-pegged stablecoin. This development aligns with the government’s broader digital finance strategy.

Last week, the FSA announced its support for a new stablecoin pilot project involving Mizuho Bank, MUFG, and SMBC. These major banks will test blockchain-based transfers and settlements using yen-backed digital currencies. The goal is to create secure payment solutions under regulated frameworks.

While tightening oversight through crypto asset regulation, the FSA also encourages innovation within a secure legal environment. This balanced approach aims to foster growth while mitigating cyber risks. Japan’s regulatory focus now combines stricter compliance with strategic digital currency development.

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