Financial regulators in Japan are set to dole out punishments to multiple cryptocurrency exchanges this week, in addition to shutting some down entirely.
Cracking the Whip
In 2017, Japan became the first country in the world to nationally regulate cryptocurrency exchanges, resulting in a total of 16 legally registered exchanges and 16 more legally allowed to operate while their applications are considered. Now, some of those exchanges are supposedly being ordered to close their doors, while others must make significant improvements.
The FSA’s punitive measures come after the regulatory authority discovered serious issues in multiple cryptocurrency exchanges’ consumer protection and anti-money laundering measures. These flaws were discovered during on-site inspections — though exactly which exchanges will be punished, and in what form those punishments will take, is still unknown.
On-site inspections — which specifically look for gaps in security and report on risk management solutions and cryptocurrency storage — became a priority for the FSA after the infamous Coincheck hack. The conducted investigations have resulted in some unregistered exchanges being issued orders to cease operations.
Sources told CNBC that Japan’s Financial Services Agency (FSA) is also planning on potentially ordering Coincheck to raise its operating standards after the exchange lost $530 million of digital currency in a high-profile theft from hackers. This move would follow a previous order from Japanese regulators.
CNBC’s sources also report that the FSA may additionally order two of the government-registered exchanges, Tokyo-based GMO Coin and Zaif, run by Osaka-based Tech Bureau Corp, to make significant improvements to their operations or face the consequences. The latter exchange experienced a supposed security glitch last month which afforded seven users the ability to purchase free Bitcoins — though the orders were ultimately reversed, despite some attempts at transferring the free Bitcoin to outside wallets.
In regards to money laundering concerns, previous reports have indicated that reported cryptocurrency-related money laundering cases in Japan number only 669 out of 400,043 — which means cryptocurrency cases reported in 2017 only account for less than 0.17 percent of all suspected money-laundering cases in the country. Thus, it would seem money laundering is less of a concern than the risk of large-scale theft.
What do you think of the Japanese model of nationalized cryptocurrency regulation? Do you think cryptocurrency exchanges worldwide would benefit from regulatory oversight? Let us know in the comments below!
Images courtesy of Japan Times and Bitcoinist archives.