Japan’s Biggest Crypto Exchanges Are on the Regulator’s Radar
A number of Japanese cryptocurrency exchanges have been warned by the state regulators about improving their business practices. According to the media reports, Japan’s biggest and best-funded crypto trading platform: bitFlyer, Quoine, Bitbank, BitPoint Japan and BtcBox are facing business improvement orders from the financial regulator.
Nikkei report suggests that their failure to comply with anti-money laundering (AML) guidelines is the real trigger that forced Financial Services Agency (FSA), the country’s financial regulator, to investigate the case and issue ‘business improvement orders’. All of these trading platforms are listed with the regulator as a cryptocurrency exchange and enjoy legal status.
FSA officials are reported to have discovered ‘serious flaws’ in the listed exchanges’ internal business management systems. Despite the fact that their customers and holding assets are growing, they could not implement a transparent and credible check and balance system. Some of the reported flaws include reporting process to highlight a suspicious financial activity or transaction and procedure to alarm the system in case of money laundering worries.
The Financial Services Agency is winding up its investigations and the business improvement orders will be handed to the crypto platforms anytime next week.
This is one of the key developments following the growing incidents of cyberattacks and hacking of the crypto exchanges worldwide. Following January’s hacking of the Coincheck, the Japanese regulators have become particularly vigilant and cautious towards cryptocurrency market. The theft of $500 million from Coincheck left the whole country and crypto-world shocked, leaving no choice for the FSA but to tighten its monitoring of the domestic market.
Since February, the regulator has been finding the loopholes in the system of these registered and unregistered exchanges – and has discovered a number of problems. For example, lax security standards, deficiency of cybersecurity expert within the staff, poor auditing practices, and substandard IT protocols were too big to ignore. As a result, it suspended two cryptocurrency exchanges and ordered others (including Coincheck) to improve business practices.
On the other hand, the cryptocurrency players also realized the importance and need of the reliable check and balance system. In order to ensure that they keep practicing without any involvement of the regulator (the essence of cryptocurrency business), sixteen leading and registered exchanges launched a self-regulatory body. The purpose of this body was to prepare fundamental guidelines for the initial coin offerings in the country.
However, it could not satisfy the regulator or stop it from tightening the rope around the bad practices and practitioners. Later, the regulator asked the operators to delist all anonymous and privacy-centric coins that have no trail left behind. More recently, the FSA rejected a crypto exchange application for the first time, when a Yokohama-based operator FSHO failed to comply with certain conditions and regulations.
Given the growing scrutiny of the exchanges and platforms, it looks evident that many grey areas will be identified, and may force the regulators to shut them down. If the listed 5 platforms are suspended, it will send a very negative message to the domestic and international cryptocurrency market and may also lead to some negative results, price fluctuations, and reduced business activity.