Japan demands mandatory reserves after $21mln SBI hack – What it means

Key TakeawaysWhen will the proposal be submitted?The legislation is expected to be submitted to parliament in 2026.Don’t exchanges already protect customer funds?They must store most customer assets in cold wallets, but they are not required to keep financial reserves to cover losses, something the new rules aim to fix.Japan is stepping up efforts to protect its growing base of crypto investors.Japan’s new crypto rules The country’s Financial Services Agency (FSA) is preparing to submit new rules that would require crypto exchanges to maintain liability reserves, a safeguard designed to compensate users in case of hacks or security breaches.Japan’s crypto rules already require exchanges to keep most customer assets in cold wallets, a practice meant to reduce exposure to online attacks. But even with these custody safeguards, platforms currently have no obligation to maintain dedicated reserves for potential losses, which leaves users vulnerable if an exchange suffers a breach or operational failure.To bridge this gap, the FSA plans to submit the legislation to the parliament in 2026, signaling an effort to bring crypto oversight closer to the rules that already apply to traditional markets, according to a recent Nikkei report.How will it help Japan’s crypto ecosystem?Under the current framework for traditional securities, brokers must hold financial reserves to cover losses from unfair practices. These practices include system errors or erroneous orders that can lead to significant financial damage.Major securities firms in the country typically maintain reserves ranging from ¥2 billion to ¥40 billion. This amount, roughly $12.7 million to $255 million, depends on trading activity and overall risk exposure.The FSA plans to establish new reserve requirements based on existing standards for traditional securities. They will also consider past crypto leak cases. Exchanges may have the option to use insurance to alleviate financial burdens.Additionally, the proposed framework aims to strengthen insolvency protection measures significantly. This includes reinforcing strict asset segregation rules and streamlining the process for returning customer funds if an exchange collapses.Japan’s push for stricter oversight comes after a string of major security breaches that continue to haunt its crypto sector. For instance, the infamous Mt. Gox’s collapse, which occurred in 2014, is still impacting the crypto sector, with repayments only beginning in 2024. Moreover, DMM Bitcoin lost 4,502 BTC in a North Korea-linked hack, while SBI Crypto saw $21 million siphoned off and laundered through Tornado Cash.These repeated incidents have underscored the need for stronger consumer safeguards, making the proposed reserve requirements a crucial step toward restoring trust in Japan’s digital asset ecosystem.Japan’s crypto adoption rate and moreDespite the hacks and collapses, Japanese investors are showing their commitment to crypto. Recent data from Chainalysis revealed a 120% surge in on-chain value received in the year leading up to June 2025. This growth is the strongest among major markets in the Asia-Pacific region. Factors contributing to this increase include tax reforms, new stablecoin rules, and clearer investment recognition.Domestic trading also reflects this shift, with XRP purchases in JPY hitting $21.7 billion, far outpacing Bitcoin [BTC] and Cardano [ADA].