Japan is one of the first and very few countries where crypto exchanges are mandated to apply for a license before operating in the country. This is due to a recent revision in Japan’s financial legislation which declared Bitcoin as a payment method in the country, which that Japan’s financial watchdog, the Financial Services Agency is now able to regulate cryptocurrency activity in the country. Now, according to recent news, flawed major crypto exchanges operating in the country have received a warning to improve their business and systems.
This initiative has been started due to the failure of these cryptocurrency exchange platforms to comply with Japan’s Anti-Money Laundering guidelines (AML). According to the report published by Nikkei, at least five major cryptocurrency exchanges will receive this warning to improve business by the FSA. The top five cryptocurrency exchange platform who are targeted with the warning are bitFlyer, Bitbank, BtcBox, Quoine, and BitPoint Japan. Its worth noting that all five of these crypto exchanges are registered with the FSA to operate in the country.
These flaws were discovered by the Japanese financial watchdog during an internal investigation of the exchanges where the management systems didn’t work as per the guidelines when there is an exponential increase in the exchanges’ customer holdings. According to the FSA investigation, the reporting procedures that are in charge of flagging suspicious transactions that may be an attempt to launder money were flawed. Nikkei reports that the formal warning will be delivered to these exchanges by the end of this week.
It is clear that Japan’s Financial Services Agency has stepped up its involvement in the cryptocurrency industry and operators in the country. The reason to this revitalization is the $500 million hack which occurred at Coincheck, a Tokyo-based crypto exchange that is also not registered with the FSA. The incident is now the biggest theft in the history of cryptocurrency.
The FSA began its work with spot checks on several registered and unregistered cryptocurrency exchanges operating in the country. The agency soon found out a number of concerns that included a lack of accounting experts for internal auditing, lack of IT security experts, and lax security standards implemented in the mentioned exchanges. The list doesn’t end here either.
The reaction to this investigation had two exchanges’ businesses suspended for over a month while many crypto exchanges received a warning to stop operating in the country without registering with the FSA and earning a license to operate in the country. Five other exchanges including Coincheck received business improvement ultimatums at the same time.
Later in April, over 15 crypto exchanges who held the license to operate in the country founded their self-regulatory body to keep the member exchanges in check with each other and establishing unanimous guidelines for ICOs in Japan. Even after so much, the FSA forced crypto exchanges operating in Japan to suspend the trading of anonymous cryptocurrencies including Monero.