Fresh Regulations for Japanese Crypto Exchanges

Japan has been looking to tighten up its cryptocurrency regulations.

Japan is one of the leaders of the crypto space, with some of the few state-licenses exchanges in the world, but some of these exchanges will be looking at new regulations and audits in the not-so-distant future.  

Japanese financial regulators have reported that a new screening requirement is in order for crypto exchanges. This only applies for exchanges that are seeking approval, but those that have already been approved might be monitored again to make sure they match the necessary protocols. Regardless, Japanese financial regulators have expressed concern about the financial health of some of these exchanges and wish to further confirm their system safety measures.

The Financial Services Agency (FSA) is the largest financial regulator in Japan and has been responsible for this change. Their reported goal is to “see whether [these exchanges] are properly conducting risk management” as per the Japan Times. Specifically, the agency has reportedly increased the number of questions in their screening application “up to fourfold.” Previously, the only aspects covered in these applications was the exchange’s financial status and basic measures for system safety. However, given the risks involved, the FSA wishes to expand on these basic guidelines. Now, applicants must submit minutes from their board meetings to demonstrate that measures are being taken to maintain the overall financial health of the company. On top of this, links to fraudulent activity will also be monitored by making sure these exchanges are following their developments closely to prevent them. 

According to an industry-wide assessment of crypto exchanges in Japan, the FSA found overall “sloppiness” with a lack of internal controls and little to no board meetings in some of the worst cases. On this basis, six exchanges were given “business improvement orders” which demanded that they clean up their act and only then can be resume operation. As of now, three minor exchanges have closed down due to this new audit by the FSA: Coincheck, Lastroots, and Everybody’s Bitcoin. However, these exchanges will not disappear. For example, Everybody’s Bitcoin was just recently purchased by e-commerce giant Takuten Inc. and will begin operating the exchange once the application process is completed. 

The FSA has told that more than 160 crypto exchanges are trying to open up in Japan and enter the market. This is a sizeable increase from the disclosed number of 100 that was previously given by the FSA. All of this buzz in Japan means that the FSA is trying to position the country as a hub of crypto-related finances and trading, but it wants to do so in a streamlined and efficient matter. By preventing these risks and making sure management is meeting these basic standards, they are arguably on the right track. Considering that Mr. Gox is still fresh in the minds of many Japanese regulators, they definitely want to get it right this second time around.