Japan Moves to Close Crypto Custody Loophole

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Spurred by a massive $312 million hack of DMM Bitcoin, Japanese regulators are taking action to prevent a repeat. The Financial Services Agency (FSA) is now considering a rule that would require all third-party crypto custody and trading management services to officially register with the government.

The move targets a critical vulnerability exposed in the DMM breach, where the hacker’s entry point was identified as Tokyo-based software firm Ginco, an unregulated third party to which DMM had outsourced key operations. Currently, while crypto exchanges face strict custody rules, their service providers operate without comparable oversight.

The proposed system would force these providers to register and would require exchanges to only partner with approved firms. This aims to build a more secure ecosystem by ensuring all entities handling user assets adhere to stringent standards.