Japan Tightens Grip: Crypto Exchanges Forced to Hoard Liability Reserves in 2025

Japan's Financial Services Agency (FSA) just dropped a regulatory bomb—and crypto exchanges are scrambling.

The new mandate forces platforms to hold liability reserves, effectively turning them into mini-banks overnight. No more flying by the seat of their decentralized pants.

Why now? After a string of high-profile collapses (looking at you, FTX), Tokyo wants to prevent the next domino from falling. The FSA isn't asking—they're demanding bulletproof balance sheets.

Exchanges must now squirrel away enough fiat to cover sudden withdrawals. No more 'trust us, bro' accounting. The irony? Traditional banks have been skimping on reserves for decades—but when crypto does it, suddenly it's a 'systemic risk.'

Expect pushback from exchanges crying about stifled innovation. Meanwhile, savvy traders are already calculating how this affects leverage ratios—and whether to short exchange tokens ahead of the compliance deadline.

FSA drafts plan to force exchanges to hold liability reserves

The most immediate change is the FSA’s push to make liability reserves compulsory for crypto exchanges. Today, platforms in Japan are required to store customer assets in cold wallets, offline storage systems designed to protect against hacking—but as cyberattacks grow in scale and sophistication, officials say the current framework leaves too many gaps. 

Under the new idea, exchanges WOULD need to hold financial reserves that could be tapped to compensate customers if their funds are stolen or if the platform faces a major technical failure.

The structure is expected to resemble the system already used by securities firms in Japan, which maintain reserves to cover losses from unfair practices or operational errors. Those reserves typically range from 2 billion to 40 billion yen, depending on factors such as trading volumes and past issues. 

The FSA has not decided how much crypto platforms would have to set aside, but it intends to base the numbers on similar criteria and on the size of previous crypto thefts.

The proposal is still in the drafting stage and is expected to be submitted to the Diet in 2026. To avoid overwhelming smaller or newer exchanges, the regulator is considering allowing companies to fulfill part of the requirement through specialized insurance policies.

Japan wants stricter rules for bankruptcies after past failures

Another component of the FSA’s plan focuses on protecting customers if an exchange collapses. The agency wants a clear legal structure that would guarantee customer assets are returned even if the management of an exchange loses access or control. 

The proposed system would require stricter separation of customer assets from company funds and would allow an independent administrator or lawyer to take over the process of returning funds in the event of bankruptcy.

Regulators have been discussing such measures for years, but the conversation gained fresh urgency after several high-profile breaches. In May 2024, DMM Bitcoin lost 48.2 billion yen worth of Bitcoin in a massive hack. 

Only months later, in February 2025, global exchange Bybit suffered a theft of $1.46 billion. These incidents, combined with the long shadow of the 2014 Mt. Gox collapse, have reinforced the need for a more predictable system for customers who lose access to their assets.

Japan also considers classifying major tokens as investment products

In another policy shift, the FSA is reviewing whether more than a hundred major cryptocurrencies—including Bitcoin, Ethereum, and the largest altcoins—should be officially categorized as financial investment products. 

According to reporting from Asahi Shimbun, the idea would MOVE these tokens out of the Payment Services Act, which treats them as tools for payment, and place them under the Financial Products Transaction Act, the same law that governs securities and other investment instruments.

If approved, exchanges would face tighter advertising standards, stricter risk disclosure requirements, and potentially more demanding licensing conditions. For investors, it may offer clearer information and stronger protections, though it could also limit how certain tokens are promoted or traded.

A sign that Japan wants a more mature crypto market

Japan was one of the earliest countries to recognize cryptocurrency legally, but its rules have not always kept pace with the industry’s evolution. The latest discussions show the government wants a framework that reflects the reality of today’s crypto market—largely investment-driven, fast-moving, and prone to significant risks. 

With global regulators from the European Union to Hong Kong introducing tougher standards, Japan appears ready to strengthen its own position and create a system that balances innovation with stability.

Also Read: Japan Eyes Tighter Rules for Bitcoin-Holding Firms