Japan Mandates Crypto Exchange Reserve Funds

Japan's Financial Services Agency is set to mandate that cryptocurrency exchanges maintain dedicated liability reserve funds to protect customers from losses due to hacks, unauthorized access, or other operational risks, officials announced this week. The proposal, expected to be formalized through legislation submitted to parliament in 2026, marks a significant step in aligning the crypto sector with safeguards long applied to traditional financial institutions.

The reserves would function as an immediate financial buffer, enabling exchanges to compensate affected users swiftly without relying on loans or government aid. Under the plan, platforms must set aside capital based on factors such as trading volumes, customer assets under management, and risk exposure, similar to requirements for securities brokers. Those brokers currently hold reserves ranging from 2 billion to 40 billion yen, depending on their scale. For crypto firms, a comparable structure would apply, with a portion potentially covered by insurance to ease the burden. Additionally, exchanges would need to store a share of customer assets domestically to mitigate risks from foreign jurisdictions.