Japan to tighten crypto exchange oversight with new reserve mandate: report

Japan's Financial Services Agency (FSA) is planning to introduce legislation requiring local cryptocurrency exchanges to establish reserves against liabilities, aiming to significantly bolster investor protection. Currently, exchanges must keep user deposits in cold wallets, but there is no mandate for reserves to cover losses from events like hacks. The FSA intends to submit this bill to parliament next year. This move follows a major hack in 2024 where DMM Bitcoin lost about $312 million. Furthermore, the FSA is considering other regulatory changes, such as requiring third-party custodians to register and potentially reclassifying cryptocurrencies under the Financial Instruments and Exchange Act to treat them as regulated financial products, which could lead to lower capital gains tax rates. These regulatory advancements are spurring local financial institutions, including major asset managers, to prepare for offering crypto-based investment trusts.

(Source：The Block)