On 1st June, business improvement orders to multiple domestic crypto exchanges have been issued by Japan’s Financial Services Agency (FSA).
The main reason for FSA’s concern is the compliance of exchanges with the anti-money laundering (AML) requirements. Many exchanges have failed to meet the standard of maintaining the know-your-customer (KYC) to make sure of the identity of the user and prevent ‘bad actors’ from trading, this was brought forward in the agency inspection.
There are also claims by the regulators concerning that the customers’ assets and assets of the exchange are not being separated properly.
The new order by the regulator is issued to 12 crypto exchanges. Out of 12, two exchanges are officially licensed exchange and other tens are ‘quasi-operators,’ which means that their application for an FSA operating license is still pending.
According to the reports, a report summarizing the inspection results are expected to be published later this month, and will also provide further guidance on required customer protection measures.
What has led to this extra care and extra efforts from the financial watchdogs? the answer is, Japan has previously faced two high-profile scandals due to the crypto exchange. The two scandals are January’s unprecedented $532 million Coincheck hacks and the infamous collapse of Tokyo-based Mt. Gox.
The first license was issued in September, as Japan’s Payment Services Act requires all the crypto exchanges to be registered under FSA license since April 2017. The regulator further tightened stipulations this year, placing an emphasis on AML and KYC compliance.
The Japanese exchanges’ self-regulatory body was convened in April to provide assistance to domestic operators, some have opted to voluntarily close rather than stave mounting pressure from the FSA. The country continues to show booming crypto adoption levels.
Last month, a leading Japanese fintech company announced it would be launching a crypto asset exchange within the year.