Japan Aims to Fortify Crypto Ecosystem with Proposed Custodian Licensing Regime

Japan is set to strengthen the foundations of its digital asset market by bringing third-party custodians under formal regulatory oversight. The Financial Services Agency (FSA) is considering a new licensing system that would require these service providers to register with authorities, creating a more resilient and secure financial infrastructure.

The initiative, discussed by a key government advisory council, addresses a recognized gap where exchanges are heavily regulated, but their critical service partners are not. This gap was starkly revealed in the 2024 DMM Bitcoin hack, which originated from a software provider.

By mandating registration and requiring exchanges to use only approved custodians, the FSA aims to systematize security and risk management across the entire industry, boosting consumer and institutional confidence in the Japanese crypto market.