New Regulations to Target Crypto System Providers
Japan’s Financial Services Agency (FSA) is drafting new rules that would require crypto system providers to register in advance before offering their platforms to exchanges. This significant move follows last year’s massive DMM Bitcoin hack, where approximately ¥48.2 billion, equivalent to $3 billion USD, worth of Bitcoin was stolen due to compromised software.
The proposal, which was discussed this week by the Financial System Council, signifies a notable shift in regulatory focus. Instead of solely regulating the exchanges themselves, the emphasis is now moving towards monitoring the underlying technology that powers these platforms. Current Japanese law obliges exchanges to safeguard user assets through measures like cold wallets, but the systems that enable these crucial operations have, until now, operated without direct regulatory supervision.
Enhancing Traceability and Accountability
Under the forthcoming framework, only providers that have received prior approval would be authorized to supply management systems to crypto exchanges. This pre-approval process is designed to ensure stronger traceability and accountability within the crypto infrastructure. The impetus for this change stems from growing concerns that outsourced technology partners, such as Ginco – the vendor whose system was infiltrated during the DMM hack – represent significant structural risks to the broader financial ecosystem.
Both regulators and members of the Financial System Council have expressed agreement that a regulatory approach relying solely on exchange-level controls is no longer adequate. Some council members have put forward suggestions that include mandating stricter disclosure standards for crypto firms and implementing enhanced oversight of their subcontractors to proactively prevent future security breaches.
Future Implementation and Impact
The FSA is anticipated to finalize its recommendations by the end of the current year. This timeline is expected to pave the way for an amendment to Japan’s Financial Instruments and Exchange Act in 2026. If this amendment is approved, it would represent one of the country’s most substantial steps to date in fortifying its cryptocurrency infrastructure against systemic vulnerabilities and enhancing overall security.