Japan -- Custody Regulations Regulatory Overview

Japan regulates cryptocurrency (termed "crypto assets") custody primarily under the Payment Services Act (PSA), requiring providers serving Japanese residents to register as Crypto Asset Exchange Service Providers (CAESPs) or equivalent, with strict rules on asset segregation and cold storage. The Financial Services Agency (FSA) oversees enforcement, mandating these for exchanges and third-party custodians to mitigate hacking risks and ensure AML/CFT compliance.[1][2][3][4]

Custodial License Requirements

Crypto custody services—defined as "administration of crypto assets on behalf of another person"—require registration as a CAESP (formerly CA Exchanger) under the PSA. This applies to third-party custodians providing services to exchanges or residents, closing prior loopholes for unregistered tech firms or software providers. Exchanges may only use registered custodians. A new framework proposes pre-registration for custody and trading system providers, with amendments to the Financial Instruments and Exchange Act (FIEA) expected by 2026.[1][2][7]

Segregation of Client Assets Rules

Customer crypto assets must be strictly segregated from the provider's own assets, typically via separate accounts or wallets. For fiat linked to crypto services, deposits must go into bank accounts. Providers must hold client assets separately to protect against exchange insolvency or hacks.[1][2][4][7]

Insurance/Bonding Requirements

Search results do not specify mandatory insurance or bonding for crypto custodians; focus remains on segregation, registration, and security measures like cold storage rather than financial guarantees.[1][2][3][4][7]

Cold Storage Mandates

Providers must use offline (cold wallet) storage for customer crypto assets, ensuring at least 100% equivalence of client holdings in cold wallets (after accounting for the provider's own cold-stored assets). This stems from PSA amendments post-2018 hacks like Coincheck.[1][2][7]

Qualified Custodian Definitions

No explicit "qualified custodian" definition akin to U.S. standards exists; instead, qualified entities are registered CAESPs under PSA handling custody, including independent providers. Banks may soon offer custody under proposed FIEA expansions classifying crypto as financial instruments.[2][5][7]

Pending Custody Legislation

FSA plans 2026 amendments to the FIEA, requiring custody/trading providers to register before partnering with exchanges, enhancing transparency against cyberattacks. A bill classifies crypto as financial products under FIEA, enabling bank custody, banning insider trading, mandating disclosures for 105 tokens (e.g., Bitcoin, Ethereum), and aligning with traditional markets. Legislative changes target Japan's 2026 parliamentary session.[1][5][6]