Japan’s crypto exchanges issue. Japan’s Financial Services Agency (FSA) announced recently that it has issued orders to six cryptocurrency exchange operators–Tech Bureau, Corp., BITPoint Japan Co. Ltd., BTC BOX. Ltd, bitFlyer, Inc., and QUIONE Pte. Ltd.–to reform their business practices.
The FSA conducted on-site inspections at each of the companies and the results identified various points for reform, such as lack of effective internal control measures for money laundering, terrorism financing countermeasures, controls for segregated accounts for user assets and managing accounting records, and prevention of cryptocurrency outflows due to unauthorized access.
BitFlyer, thought to be the largest exchange in Japan, was required to address 10 items, the most of the six. Among those items was an order for “drastic revisions to business administration posture.” The FSA said bitFlyer had not established proper internal management due to focus on cutting costs, including internal auditing.
In addition, the FSA said bitFlyer’s supervisory committee as well its the board of directors had not deployed an appropriate system of checks and balances and that declarations made by bitFlyer during its registration screening were contrary to the facts.
As a result, BitFlyer has voluntarily stopped accepting new clients to focus on improving its management systems, including identity verification. It has not suspended transaction services for existing clients, however.
The FSA’s actions come after a call for increased oversight following the huge Coincheck hack in January. The theft of half a billion dollars worth of XEM being the catalyst for the FSA to strengthen its monitoring of cryptocurrency exchanges.
Interestingly the agency’s on-site inspections have been targeted not only at quasi-operator exchanges awaiting formal approval, but at exchanges that have been successfully registered as well.
While bitFlyer was identified as having the most issues, other exchanges were also found wanting — with some not having addressed issues identified in previous FSA audits.
This is the second time, for example, that Tech Bureau has been ordered to reform its business practices, with the first request occuring on March 8th. During regular checks on the status of improvements, the FSA recognized found that Tech Bureau’s management had not responded appropriately to recurring system failures and frequent complaints.
Cryptocurrency exchange operator FSHO was previously denied registration as an exchange by the FSA earlier in June after receiving two orders to suspend service in March and April. However, FSHO was a quasi-operator that was taking steps towards formal approval from the agency, differentiating it from the six registered operators identified in the latest audits. Industry observers say much heavier penalties could be handed down to these companies if improvements are not quickly forthcoming@BPI
