To say that the Japanese government has been forgiving towards cryptocurrency exchanges may be too strong of a statement–but not by much.
After approving 16 cryptocurrency exchanges, the Japanese financial regulator is reportedly set to reject a crypto exchange application for the first time.
Japan’s usual approach towards exchanges who fail to meet the required regulatory expectations, is to allow them to save face and politely withdraw license applications. One such occurrence unfolded following the Coincheck hack back in March in which $532 million dollars’ worth of NEM tokens were stolen from the exchange by hackers; subsequently, due to increased pressures from the Japanese Financial Services Agency (FSA), five exchanges halted their operations and withdrew licenses on their own accord.
According to reports from Nikkei, an Asian financial review publication, the FSA gave the following statement regarding the closure:
The decision follows the ministry’s conclusion that Yokohama-based FSHO lacks the necessary systems to operate its business…By barring an exchange operator that it has found to be substandard, the agency aims to demonstrate its determination to re-establish a sound currency trading environment in Japan.
FSHO is so far the only crypto exchange to have received two business improvement orders from the FSA earlier this year. Both times, FSHO was ordered to temporarily suspend its operations until certain issues were resolved.
The FSA condemning FSHO as “substandard” comes from its failure to comply with business improvement orders place upon them. In both March and April, FSHO operations were temporarily halted. Improvement orders for March included increasing security of user data management, to which the exchange complied. The second order in April, related to risk management systems as well as scrutiny into crime related transactions. The FSA found in its review that FSHO failed to identify such crime-related customers and thus The FSA ordered the shutdown.
Based on its review, the FSA found that
The exchange did not sufficiently verify the identity of customers in transactions where crime is suspected, or in cases where customer deposits may be diverted.
In addition to FSHO, at least seven other exchanges have said that they will be closing up shop.
Meanwhile, Japan has Coinbase knocking on its doors; hopefully, they can be a little more rigorous when it comes to regulatory requirements.