The Japanese Financial Services Agency (FSA) is actively considering a new regulatory framework. Under this new system, it would be required that all the crypto asset custody and trading management providers register with the regulator. This is aimed at sealing a security vulnerability that was revealed in one of the largest hacks last year.
The proposed rules by the FSA would also state that the licensed exchanges should use systems that are offered by these registered firms. Japanese crypto exchanges already have strict local regulations. They need to secure user money and save majority of the assets in cold wallets. An effective internal control should also be established.
Major Security Loophole Exposed by DExpensable Hack of Dummies Bitcoin.
There is however a loophole existing in the regulatory environment. These high regulations are not applicable to external firms that are contracted by exchanges to provide custody or trade assistance. This oversight failure turned into a major issue in 2024.
DMM Bitcoin, one of the largest Japanese exchanges, was hacked, and 48.2 billion were stolen. This correlates to approximate 312 million dollars of Bitcoin. Notably, the hack was not an incident that occurred within the exchange itself. Rather, the intrusion has its roots in a third party software provider, Ginco.
Ginco had facilitated the trading activities of the exchange in part. The episode brought to light a significant flaw in the current system lamentably. Even secure exchange may have the funds belonging to users jeopardized by an unregulated outside associate. This embezzlement supported the necessity to take extra steps.
FSA Submits 2026 Plans as Stablecoin Drive Continues.
This program is included in the endeavor of FSA to ensure that the Dmeme Bitcoin problem does not arise again. This policy move was accepted by many committee members during a recent working group meeting. Moreover, the voices were focusing on the lack of accountability of the exchange companies in the cases of outsourcing. It was declared that “there is need to specify what further steps should be taken.
It will not be long before the Financial Services Agency incorporates a holistic report on the basis of such pertinent deliberations. The agency intends to file amendments to the Financial Instruments and Exchange Act within the 2026 ordinary Diet. This will put a formal mark of the regulatory perimeter of Japan to external providers.
Concurrently, the FSA has already increased its pace to advertise local projects regarding stablecoins. As an illustration, in October the FSA endorsed the first yen-pegged stablecoin in the country, JPYC. Moreover, the agency declared its back-up of a pilot project on the stablecoin last week. This venture entails the three major banks in Japan namely Mizuho Bank, MUFG and SMBC. These two measures demonstrate a combined effort of both ensuring the crypto market and promoting digital finance innovation.