Financial Services Agency Makes Screening for Japan’s Cryptocurrency Exchange Registration Stricter
Stricter Screening for Japan’s Cryptocurrency Exchange Registration
The Jiji Press reported that the Financial Services Agency made the screening of cryptocurrency exchange registrants based on the revised Fund Settlement Law stricter.
The stricter matters revealed in this news report are as follows.
-Expansion of questions contained in the screening documents to about 400 items, which is four times higher than in the past
-The requirement to submit a record of meetings among the Board of Directors regarding measures to maintain financial soundness, system security measures, and management involvement in decision making of each item.
-Periodic investigation of shareholder composition
-Presence of in-house system to check if there are relationships with criminal enterprises
Reference: Jiji Press
Also, the report included matters regarding the business improvement order issued to six major cryptocurrency exchanges as well as the August 10 “Interim Presentation of Cryptocurrency Exchange Inspection and Monitoring,” where the relevant items were observed. Details of the screening criteria cited in these interim reports were clarified by this news report.
List of business improvement orders
BITPoint
While priority is given to expanding the business, it is reported that the money deposited by clients is continuously lower than the expected balance on the books. Problems were found in the management, which did not consider measures to resolve this situation at the Board of Directors meeting. Problems were also found in the internal management system regarding money laundering, countermeasures against terrorist financing, user protection measures, and system risks.BTCBOX
While priority is given to expanding the business, authority is concentrated on the representative director, preventing the Board of Directors and representatives from fulfilling their respective duties and responsibilities. In addition, problems were found in the internal management system regarding system risk, money laundering, countermeasures against terrorist financing, and prevention of transactions with criminal enterprises.
bitbank
While priority is given to expanding the business, internal regulations were found to be different from the actual conditions. Furthermore, the money deposited by clients was constantly lower than the balance on the books, and problems were found with internal management including separating the storage of client funds, countermeasures against terrorist financing and money laundering, and outsourcing management.
bitFlyer
In addition to not maintaining an internal control system including internal audits, priority is given to minimizing costs, and it was found that the audit committee and the Board of Directors were not demonstrating their authority. Furthermore, the company management climate is such that the statements made to officials during the screening were inconsistent with the actual situation.
In addition, problems were found in the internal management system, which lacked measures to protect against money laundering and terrorist financing, did not manage books and separate client funds, and did not have measures to prevent the illegal outflow of cryptocurrencies due to unauthorized access.
Zaif
While continuing on-site inspections to confirm the management situation of the company, it was found that the company had neither organized nor executed a structured plan to address the frequent system malfunctioning and increasing complaints. In addition, problems were found in the internal management system regarding compliance with laws, lack of countermeasures against money laundering and terrorist financing, and separate management of client funds.
Although the cryptocurrency exchange registration applications for over a hundred companies, which had been stopped after the Coincheck cryptocurrency outflow incident, have resumed after the announcement of the interim inspection results that summarized the problems and risks of cryptocurrency exchanges, there is concern that the stricter screening process with quadruple the number of questions will discourage companies from proceeding with the screening process.
However, despite the stricter process, the clarification of rules can be interpreted as a movement by the Financial Services Agency to formally resume the registration process for new business registrations. This can be perceived as a positive movement in terms of expanding the cryptocurrency industry in the Japanese market, which had been stagnating since the registration itself was stopped at one point.
Meanwhile, the purchase of all the stock of the company that operates the cryptocurrency exchange “Everyone’s Bitcoin” (presumptive operator: application for registration pending) through Rakuten Card Co., Ltd., a consolidated subsidiary of the “Rakuten Group,” in addition to the decision of Z Corporation of the Yahoo Group to engage in capital participation for the cryptocurrency exchange “bitARG Exchange Tokyo,” suggest that there may be an increase in activity allowing entrance into the industry in a quicker fashion in light of the stricter regulations.
The Future of the Japanese Cryptocurrency Industry
Looking back on the Japanese cryptocurrency market, the revision of the “Fund Settlement Law” which led to the increase in number of new participants as well as the fact that legislation was passed before the rest of the world, contributed to the background that made it a massive global market.
The passing of legislation is not done overnight, but the process, which outlines legal rules through debate, will be essential for the cryptocurrency industry as well.
By setting the law on cryptocurrency before the rest of the world does, Japan — a major economic power and developed country — is expected to eliminate various concerns surrounding the industry and make it possible to do business and investment with peace of mind in a “ healthy market environment.”
In an interview with Reuters the other day, Toshihide Endo, who was appointed as the new Secretary of the Financial Services Agency, said, “There is no intention to excessively regulate [the cryptocurrency industry]. We want it to grow under appropriate regulation.”
Though restrictive measures will be put in place, it’s important not to forget that these are actions that take into consideration the future of the industry.
