Bybit has announced it will discontinue services for Japanese residents and gradually implement account restrictions starting in 2026 to comply with local regulations. The world's second-largest exchange by trading volume notified affected users via email, urging those who believe the classification is incorrect to complete Identity Verification Level 2 by January 22, 2026. The decision follows mounting regulatory pressure from Japan's Financial Services Agency, which has intensified oversight of unlicensed crypto platforms. Japan's FSA is preparing sweeping reforms including outlawing crypto insider trading, requiring exchanges to hold dedicated reserves against customer losses, and lowering crypto profit taxes to 20% from 55%. The regulator aims to reclassify digital assets from 'means of settlement' to 'financial products' comparable to stocks and bonds. Despite regional setbacks, Bybit has secured licenses in other markets including Dubai's Virtual Asset Regulatory Authority and Austria's Financial Market Authority for EU operations.