Japan’s FSA is all set to impose tougher regulations on crypto exchanges by introducing a new framework in order to prevent another Coincheck heist. In the meantime, big names like Kraken are moving out of the country to less strict options.
Tighter regulation for crypto exchanges on the way
In the aftermath of Coincheck heist in January, that resulted in the loss of $500 million worth of cryptocurrencies, Japan has been implementing stricter regulations on the cryptocurrency exchanges. The latest development in this context has come in the form of new measures that involves five-point programme that is being released by the country’s watchdog Financial Services Agency (FSA).
Japan which used to be a crypto friendly nation is now toughening up the review standards for crypto exchanges that register with FSA. In order to prevent another Coincheck heist and money laundering along with protecting the interests of the investors, FSA is bringing this agenda to regulate the country’s exchange arena.
According to a local media channel, FSA is working on introducing “a new perspective in reviews of registrations” in which the registration process would also include preliminary visits for detailed investigations apart from the documentation.
Since April 2017, when bitcoin among other digital currencies were recognized as a valid form of payment, the government has been working towards the growth of this industry which has now shifted its focus to measures and compliance.
FSA to introduce five-point criteria for crypto exchanges
Under the FSA’s five-point criteria, the crypto exchange operators that are registered with the government will have to follow tougher system management standards. These security standards mean no coins to be stored on online wallets and multiple passwords for currency transfers to prevent hacking and unauthorized transfers.
In order to prevent money laundering, the second point is to follow the know-your-customer (KYC) process. Furthermore, large value crypto transfers will have to follow through stringent customer identification verification.
Thirdly, for asset management, best practices need to be followed that involves managing the customer assets and exchange assets separately. Moreover, FSA requires the exchanges to have rules to keep their officers from unauthorized usage of clients’ digital assets. The platform will also have to perform regular checks to avoid any manipulation.
The FSA also puts restrictions on the listing of particular cryptocurrencies. As a general rule, privacy-focused digital currencies that can be easily used for money laundering due to their anonymity feature won’t be allowed at government-registered exchanges.
The last point deals with the internal structure and operation of the exchange. For more clarity, shareholders will be separated from the management. To prevent the internal system manipulation, the roles of development and asset management will also be separated.
Meanwhile, the big industry players like Kraken move onto other places
The new framework will come into practice when FSA starts accepting new applications for registration which is likely to happen this summer. These standards will allow the agency to implement a pre-emptive approach by performing a detailed assessment.
However, the tightening regulations are forcing the crypto exchanges to move out of Japan as recently happened in the case of Kraken which announced the halt of its services to the residents of the country.
Last month, Kraken stated:
“it is impractical to continue service for Japan residents.” Apparently, cost to comply with the new regulations was the factor behind this decision.
Do you think the new framework developed by FSA will drive other crypto exchanges away from Japan as well or will it prove exemplary in the crypto market? Share your thoughts with us!
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I am an associate content producer for the news section of Coingape. I have previously worked as a freelancer for numerous sites and have covered a dynamic range of topics from sports, finance to economics and politics.