Japan’s FSA Proposes Stricter Regulations for Crypto Custodians and Service Providers
Japan’s Financial Services Agency (FSA) is planning to tighten its supervision of the country’s digital asset infrastructure by introducing new registration rules for crypto custodians and trading service providers. This move aims to strengthen the security of digital assets and prevent potential theft and systemic risks.
The proposal follows the 2024 DMM Bitcoin hack, which exposed vulnerabilities in outsourced trade management systems. The incident resulted in the theft of 48.2 billion yen ($312 million) worth of Bitcoin and highlighted the need for clearer regulation in the growing crypto ecosystem.
Key Aspects of the Proposed Registration Rules
The plan requires all third-party custody and trade management firms to register with regulators before offering services to crypto exchanges. Exchanges, in turn, would only be allowed to use systems developed by registered companies. This move is expected to reduce the risk of theft and systemic risks associated with unregulated third-party service providers.
Under the current Japanese framework, crypto exchanges must meet strict deposit security requirements, such as storing customer assets in cold wallets. However, similar rules do not apply to third-party service providers, creating a security vulnerability. The FSA intends to address this issue by introducing the new registration system.
Japan’s Efforts to Balance Innovation and Investor Protection
The initiative comes as Japanese regulators step up efforts to balance innovation and investor protection. Last month, the FSA approved the country’s first yen-backed stablecoin, JPYC, and recently confirmed plans to support a stablecoin pilot with Japan’s three largest banks, Mizuho, MUFG, and SMBC, as part of its broader digital finance agenda.
The stablecoin pilot, which aims to improve payment efficiency and business productivity across Japan’s financial sector, will involve the development of a common framework for issuing yen-backed stablecoins. The consortium may later launch a dollar-pegged version to compete with USDT and USDC.
Conclusion
In conclusion, Japan’s FSA is taking steps to strengthen the security of digital assets by introducing new registration rules for crypto custodians and service providers. The move is expected to reduce the risk of theft and systemic risks associated with unregulated third-party service providers. As Japan continues to accelerate its stablecoin adoption strategy, the country is poised to become a leader in the digital asset space.
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