Japan’s Financial Services Agency (FSA) has called on cryptocurrency exchanges to strengthen customer protections by introducing withdrawal delays and a range of additional security measures designed to curb the growing wave of crypto-related scams.
The request, made jointly with the National Police Agency (NPA), reflects increasing concern over criminals exploiting cryptocurrency exchanges to move funds obtained through phishing attacks, investment fraud, impersonation schemes, and other financial crimes.
Although the recommendations are not legally binding, they signal the Japanese government’s determination to strengthen security standards across the country’s regulated digital asset industry.
Regulators Respond to Rising Crypto Scam Losses
According to the FSA, the recommendations come after a noticeable increase in cases where victims are deceived into purchasing cryptocurrencies and transferring them to fraudulent wallets.
Authorities have also observed criminals using exchange accounts as part of broader money-laundering operations, making it more difficult for investigators to recover stolen assets once transactions are completed.
By introducing additional verification steps before withdrawals can occur, regulators hope exchanges can provide customers with more time to identify suspicious activity and prevent irreversible losses.
Proposed Withdrawal Delays
One of the key recommendations asks cryptocurrency exchanges to delay digital asset withdrawals following certain customer activities.
Under the proposal, exchanges would temporarily restrict withdrawals after users:
- Deposit fiat currency into their accounts.
- Purchase cryptocurrencies using Japanese yen.
- Complete other transactions considered vulnerable to fraud.
The cooling-off period is intended to reduce the effectiveness of scams that pressure victims into immediately transferring newly purchased digital assets to criminal-controlled wallets.
Authorities believe even short withdrawal delays could provide valuable time for victims to recognize fraudulent schemes or contact exchange support before funds leave the platform.
Mandatory Address Registration Before Transfers
The FSA has also recommended that exchanges require customers to pre-register cryptocurrency withdrawal addresses before assets can be transferred.
Rather than allowing immediate withdrawals to newly entered wallet addresses, exchanges would introduce a waiting period before those addresses become eligible for use.
This additional verification layer is designed to make it more difficult for scammers to convince victims to rapidly send funds to unauthorized external wallets.
The measure mirrors security practices already used by many financial institutions for large bank transfers and account modifications.
Additional Security Measures Recommended
Beyond withdrawal delays, Japanese regulators have proposed a broader package of security enhancements aimed at reducing fraud across cryptocurrency platforms.
The recommendations include:
- Customer-specific withdrawal limits based on individual risk profiles.
- Enhanced monitoring of login behavior and transaction patterns.
- Stronger authentication systems resistant to phishing attacks.
- Improved detection of suspicious access environments.
- Verification that bank transfer names match registered exchange account holders before crypto purchases are completed.
Together, these measures seek to strengthen identity verification while making fraudulent account activity more difficult to execute.
Industry Self-Regulatory Body Receives Guidance
The recommendations were formally submitted to the Japan Virtual and Crypto Assets Exchange Association (JVCEA), the industry’s self-regulatory organization responsible for promoting operational standards among licensed cryptocurrency exchanges.
Rather than imposing uniform requirements, regulators have asked exchanges to determine how best to implement the recommendations based on their:
- Business models
- Operational structures
- Customer base
- Risk exposure
- Available security infrastructure
This flexible approach allows exchanges to tailor security controls while maintaining consistency with broader regulatory objectives.
Measures Are Advisory, Not Mandatory
Importantly, the FSA emphasized that the proposals do not constitute new legally binding regulations.
Instead, they represent supervisory guidance encouraging exchanges to strengthen their internal controls and customer protection mechanisms.
However, because Japan maintains one of the world’s most mature cryptocurrency regulatory frameworks, industry participants are expected to take the recommendations seriously as part of ongoing regulatory compliance and best practices.
Japan Continues Strengthening Crypto Oversight
Japan has long been regarded as one of the first major economies to establish comprehensive oversight of cryptocurrency exchanges following the collapse of Mt. Gox and subsequent industry reforms.
Licensed exchanges operating in the country already comply with strict requirements covering:
- Customer asset segregation
- Cybersecurity standards
- Anti-money laundering (AML)
- Know Your Customer (KYC) procedures
- Operational risk management
The latest recommendations demonstrate that regulators continue adapting their approach as cybercriminals develop increasingly sophisticated methods for exploiting digital asset platforms.
Balancing Security and User Experience
While additional withdrawal delays and verification requirements may introduce some inconvenience for legitimate users, regulators argue that stronger safeguards are becoming increasingly necessary as crypto adoption grows.
The challenge for exchanges will be balancing customer convenience with robust fraud prevention measures that protect users without unnecessarily slowing legitimate transactions.
As cryptocurrency scams continue to evolve worldwide, Japan’s latest guidance may also serve as a model for other jurisdictions seeking to strengthen consumer protections while preserving innovation in the digital asset ecosystem.
