Japan Considers Limiting Crypto Custody to Authorized Providers

Japan’s Financial Services Agency (FSA) is evaluating a new framework that would require digital asset custodians and trading management providers to register with authorities and notify them before offering services to cryptocurrency exchanges.

A report by Nikkei highlighted that a working group under the Financial System Council, an advisory body to the Japanese Prime Minister, discussed the matter on November 7.

Under existing regulations, crypto exchanges must implement strict deposit management, including storing user assets in cold wallets. However, Nikkei noted that similar requirements do not currently apply to third-party service providers collaborating with exchanges.

The FSA intends to make it mandatory for custodial and trading service providers to register with the authorities, and for exchanges to use only systems provided by these registered custodians. The move is designed to close security gaps that could otherwise result in theft or operational failures, the report stated.