Japan’s Financial Services Agency (FSA) is moving to significantly bolster user protection within the domestic cryptocurrency market, with plans to mandate that local exchanges establish dedicated liability reserve funds, Coindesk said in a news report.
The regulatory push, driven by recent high-profile global exchange security breaches, is designed to ensure compensation mechanisms are readily available for users affected by hacks, system failures, or unforeseen operational events.
The FSA’s advisory body, the Financial System Council, is expected to formally recommend the creation of these liability reserves following a meeting scheduled for Wednesday. This measure aims to introduce a level of financial stability and consumer protection long associated with traditional financial institutions.
The move to strengthen exchange oversight is part of a broader, more nuanced approach to digital assets in Japan, a nation with a substantial crypto user base of approximately 12 million registered accounts as of February.
The FSA is simultaneously considering revising regulations to allow banks to purchase and hold cryptocurrency assets. This potential policy shift could integrate digital assets more deeply into the traditional financial system.
In parallel, the market for stablecoins is gaining traction under new regulatory clarity. After a period of establishing rules for a Japanese yen-pegged stablecoin, Tokyo-based fintech firm JPYC launched its digital asset in October. The company states its stablecoin is fully backed 1:1 by bank deposits and government bonds.
While regulators prohibited non-banking institutions from issuing stablecoins in 2022, the FSA has indicated that the first yen-backed token could receive formal approval by 2026. Major financial players are already positioning themselves:
- Progmat, a stablecoin issuance platform launched in 2023 by banking giants Mitsubishi UFJ Financial Group, Sumitomo Mitsui Banking Corp, and Mizuho Bank, is actively exploring the launch of its own tokens.
- Monex Group, a prominent financial company in Japan, is also considering issuing a yen-pegged stablecoin.
