New Crypto Exchanges In Japan To Face Strict Registration Requirements

The Financial Services Agency (FSA), Japan's financial regulator just got stricter in its dealings with cryptocurrency exchanges in the country.


The Financial Services Agency (FSA), Japan’s financial regulator just got stricter in its dealings with cryptocurrency exchanges in the country.

The process could potentially lock out several companies looking to license crypto exchange businesses.

According to local media outlet The Japan Times, the government agency has tightened its registration screening process, whose aim is to ensure that the exchanges “are properly conducting risk management.”

The FSA’s stringent processes seek to enforce the Payment Services Act, a set of measures designed to protect cryptocurrency users. The Act came into effect in April 2017.

According to Japan Times, the watchdog’s set of questions has quadrupled and now involve nearly 400 unique questions. It is also mandatory for applicants to avail board meeting minutes as part of the checks on financial health and security system.

Apart from requiring that exchanges submit copies of board minutes, the FSA will also conduct an inspection of the applicant’s physical address and premises. The aim is for the government agency to ascertain the veracity of the given answers.

Also important to the agency is the assessment of meeting records to establish whether a company’s executives take the right decisions on behalf of the company.

The screening process also involves checks on the company’s shareholders to ascertain whether any of them has any links to illegal groups.

The financial regulator’s screening of crypto exchanges only resumed recently following a suspension earlier in the year.

The process stood suspended in the aftermath of a cyber-attack on Coincheck in January. The cryptocurrency exchange lost about $532 million worth of NEM coins.

The FSA released a report of its on-site inspections in August this year, which revealed that most crypto exchanges had sloppy internal controls.  It showed that most of the exchanges did not have properly kept records for board meetings.

The FSA consequently issued warning letters to six registered crypto exchanges and asked them to improve. The business improvement orders related to a lack of robust management systems, including poor AML mechanisms.

The report also included plans by the regulator to scrutinize newly registered exchanges to ensure that they had effective mechanisms in place before rolling out their services.

In August, the head of FSA, Commissioner Toshihide Endo, clarified that although the agency would institute tougher regulations for the crypto and exchange industry, none of the rules would be designed to stifle the sector.

Mr. Endo said that the agency would help in the development of the crypto industry by providing a framework that allows it to “grow under appropriate regulation.”

However, the FSA said in July that it would introduce changes within the industry targeting cryptocurrency exchanges. The aim was to facilitate the implementation of the Financial Instruments and Exchanges Act (FIEA).

If the country adopts the new laws, it will become mandatory for cryptocurrency exchanges to separately manage their customer funds and corporate assets. These changes would be similar to investor protection requirements commonly applied to traditional stock brokerages.

The new approach would see stricter regulatory oversight, not only on cryptocurrency exchanges but also on cryptocurrencies used as speculative instruments.

Over 100 companies have applied for registration to operate cryptocurrency exchange businesses.

Among those struggling to get licensed is BitBox, a crypto-to-crypto exchange platform that launched in July. It is a platform on which messaging app Line hoped to list its cryptocurrency Link.

The lack of a license for BitBox means that over 75 million Line customers in Japan cannot use its cryptocurrency, at least not until the exchange gets FSA’s approval.

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