Japan Pushes Crypto Exchanges to Adopt Withdrawal Safeguards Against Rising Fraud

Regulatory Push for Stronger Account Protection

Japanese financial authorities are escalating efforts to protect cryptocurrency users from fraud. The Financial Services Agency (FSA), working alongside the National Police Agency, has submitted a formal request to the Japan Virtual and Crypto Assets Exchange Association—the country’s self-regulatory body for digital asset platforms—asking exchanges to introduce a series of withdrawal safeguards. The measures aim to address a sharp increase in losses stemming from scams and schemes where stolen funds flow through crypto exchange accounts.

The timing of this request reflects growing concerns among regulators and law enforcement about how crypto exchanges are being exploited by bad actors. Rather than imposing mandatory rules, the FSA has framed these as recommendations, giving individual platforms flexibility to implement safeguards based on their specific operations and risk profiles.

Proposed Safeguards Target Fraud Vectors

The recommended measures paint a picture of multi-layered defense against common scam tactics. Exchanges are being asked to institute withdrawal delays following customer deposits or asset purchases, preventing attackers from moving stolen funds instantly. Pre-registration of withdrawal addresses—where customers must name their destination wallets in advance—adds another friction point for fraudsters. Newly added addresses would face their own withdrawal restrictions for a specified window, making it harder for attackers to establish fresh payout routes.

Beyond those headline measures, regulators are encouraging stronger transaction monitoring, customer-specific withdrawal limits, and phishing-resistant multifactor authentication. A seemingly modest but meaningful proposal involves verifying that the name of a bank account used for remittances matches the name of the crypto account holder—a simple check that can catch many suspicious flows.

A Flexible Framework for Compliance

A crucial detail: these requests are not binding regulations. The FSA has explicitly stated that exchanges retain discretion in how—or whether—to implement each measure, depending on their operational model and exposure to misuse. This approach allows platforms to balance security with user experience, rather than facing a one-size-fits-all mandate.

This measured regulatory tone reflects a maturing crypto ecosystem where authorities recognize the need to protect users without strangling innovation. Exchanges that adopt these safeguards voluntarily signal a commitment to reducing fraud, which strengthens user confidence across the market. For Japan’s crypto sector and the broader digital asset space, reducing fraud losses means more capital available for productive investments rather than flowing into criminals’ hands.

Source: Japan Financial Services Agency, via Cointelegraph. Not financial advice.