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Japanese regulators ban two cryptocurrency exchanges, send instructions to 5 more

Mar 09, 2018 Posted /  4842 Views

Japanese regulators ban two cryptocurrency exchanges, send instructions to 5 more

After the Coincheck heist, the Japanese regulators are quite sturdy on their monitoring of the cryptocurrency exchanges, and now Japan's Financial Services Agency (FSA) has ordered two cryptocurrency exchanges, namely, Bitstation and FSHO to stop their business for a month's period. The agency also issued instructions to five others exchanges, including Coincheck to improve their internal controls and communicate back to the regulator.

The action follows an examination into digital currency exchanges that obtained poor compliance with anti-money-laundering laws, unprepared and poorly trained staff and “misappropriated” cryptocurrencies. The probe was made subsequent to the $500m theft, in January, at Coincheck, one of the largest exchanges in the country.

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The clamping down is expected to provoke a shiver in Japan’s booming cryptocurrency market. It is noteworthy that trading has gone weaker heist and exchanges are going out of business or have teamed up with extensive and better-organized competitors.

Financial companies frequently strive to leap back from a business discontinuance order, making it a great regulatory penalty. Nonetheless, it also raises questions about the quality of the FSA’s primary regulatory scrutiny at the 32 cryptocurrency exchanges in Japan. Sixteen are operating with full licenses and a further 16, including Coincheck, rely on provisional authorization to trade.

Although the FSA’s on-site inspections are not complete, it has found cases where exchanges did not follow anti-money-laundering rules or had inadequate internal controls. At Nagoya-based Bitstation, a company official “misappropriated user cryptocurrencies for private use,” said the FSA. It ordered Bitstation to halt its business until April 7 and report on improvements to its handling of user funds.

At FSHO, based in Yokohama, the regulator said that staff were inadequately trained and did not follow internal procedures. “There were repeated cases of high-value cryptocurrency trades with no judgment made about the need for notification of a suspicious transaction,” said the regulator.

FSHO was also ordered to suspend trading until April 7 and make the necessary notifications of suspicious transactions.

Hackers broke into Coincheck’s systems in the early hours of the morning on January 26 and stole about $500m of the cryptocurrency XEM belonging to 260,000 customers.

Coincheck has vowed to repay customers from its own resources, but the credibility of that plan is still unclear. The company has restarted yen withdrawals, letting customers with cash on deposit remove it. However, trading in cryptocurrencies remains suspended until Coincheck improves security.

Japan is one of the only jurisdictions in the world to contain and regulate cryptocurrency trading. The resulting boom in activity put the country at the heart of a tenfold surge in the price of bitcoin, the leading cryptocurrency, during 2017.

Investors are anticipating to see if the FSA’s crackdown spreads from tighter enforcement of the existing rules to variations in the permissive regulatory environment.

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