Japanese Financial Services Agency (FSA) has made a move to clamp down on many Japan-based crypto exchanges, as they are sending out administrative punishment notices to quite a number of them. According to Reuters, this may force many of them to suspend operations.
The FSA is reportedly doing this to prevent a repeat of Coincheck’s $532 mln January hack, which was reported to be the biggest single hack for an exchange in the history of the cryptocurrency.
As Nikkei Asian Review reports, an FSA source revealed that it’s been challenging for FSA to identify potential risks in advance. The source reportedly told Nikkei that:
“without the necessary know-how, we’ve been feeling our way through the dark on how thoroughly we should check these different aspects.”
This new structure includes an attempt at overhauling the internal management systems of exchanges’, as well as providing protection measures for investors.
Increased monitoring and stricter measures
According to Nikkei, monitoring of customers’ accounts many times a day for unusual activities, offline-only storage of crypto holdings, and client asset management separately from those of the exchange, are new requirements for exchanges.
Stricter measures are also being put in place for anti-money-laundering (AML). In addition to the know your customer (KYC) checks, exchanges will now demand verification of identity and multiple-password protection for large transfers.
Nikkei further reports that inspectors will be sent by the FSA to all exchanges, including new and old, to check if they have been compliant with the new measures.
Last month, a new Japanese exchange self-regulatory body was convened to assist some domestic exchanges which have been affected by the FSA’s requirements. An example of such is Kraken, an international crypto exchange, which announced in April that it would be ending its operations in Japan due to the increasing business expenses.
Is Japan Setting the Bar in the Cryptocurrency Industry?
However, at a time when countries like China and India are making the cryptocurrency industry unbearable, Japan is dealing with it differently, and harnessing the industry by pioneering the introduction of regulations that are conducive for the crypto-world.
As of today, Reuters reports that, while 16 companies currently have their applications under review, 16 other companies have been registered, making Japan the first country to nationally regulate cryptocurrency firms. Also, over 100 companies have declared an interest in obtaining a crypto-exchange operation license in Japan.
There is a high chance that the regulations governing cryptocurrency in Japan may be the model for regulations globally when other countries decide to follow suit.