Japan FSA takes administrative action against FTX
On Thursday, November 10, the Financial Services Agency (FSA) has initiated administrative action again the Japan operations of FTX, the Liquid exchange acquired earlier this year, in the form of business suspension and business improvement orders, from both the Financial Supervision Section and the Securities Supervision Section of the Kanto Financial Services Bureau.
Reasons for Adminstrative Action
[This is nearly identical across the two actions, with the difference in reference to securities vs crypto asset law, so has been extracted once for ease of reading]
The Company has suspended the withdrawal (disbursement) of assets in custody (legal tender and crypto assets) to users without clearly explaining the reason to users and without specifying a schedule for resumption, claiming that it is the policy of its parent company, FTX Trading Limited, while continuing to accept assets from users and to conduct transactions with users. On the other hand, FTX Trading Limited has been continuing to accept assets from users and to conduct transactions of crypto assets with users.
In light of the capital and business relationship with the Company, it is necessary to promptly halt new transactions by users and take all possible measures to ensure that the interests of users are not harmed by the outflow of the Company’s assets to affiliated companies, etc. outside of Japan. In addition, we must take all possible measures to ensure that our company’s assets do not flow out to affiliated companies, etc. outside of Japan and cause harm to the interests of users.
The Company’s suspension of the return of user assets as described above falls under the situation of “failure to maintain a system to properly and reliably conduct the cryptographic asset exchange business,” as stipulated in Article 63–5, Paragraph 1, Item 4 of the Act, and therefore, we have decided to suspend the return of user assets as stipulated in Article 63–17, Paragraph 1, Item 4 of the Act. Therefore, we are issuing a business suspension order based on Article 63–17, Paragraph 1, Item 1 of the Law. In addition, since the said situation is deemed to fall under “a case where it is deemed necessary for the proper and reliable execution of the cryptographic asset exchange business,” a business improvement order pursuant to Article 63–16 of the Law is issued.
Financial Supervision Section
Business Suspension Order
To suspend operations related to the crypto asset exchange business (excluding those approved individually by the authorities, such as the management of deposited assets and settlement transactions for users) and the business of accepting assets from new users in relation to such business for the period from November 10, 2011 to December 9, 2022 (however, until such time as the authorities confirm that we have established a system to promptly return legal tender and cryptographic assets deposited with us by users) (except for management of deposited assets and settlement transactions for users that are individually approved by the authorities) and the business of accepting new assets from users in connection with said business shall be suspended.
Business improvement order
(1) Accurate identification of users and accurate identification of assets entrusted by users.
(2) The company shall take steps to preserve the assets entrusted to it by users, and shall not engage in any act that unreasonably consumes the company’s assets.
(3) The company shall take all possible measures for the protection of users, while giving consideration to fairness among users.
(4) Appropriate measures must be taken to inform users about the protection of their assets, and appropriate measures must be taken to deal with users.
(5) Submit a business improvement plan in writing regarding 1) through 4) above by November 16, 2022.
(6) Report in writing on the progress and implementation status of the business improvement plan every month until its implementation is completed, by the 10th of the following month.
Securities Supervision Section
Business Suspension Order
FTX Japan shall suspend its business relating to OTC derivatives transactions (excluding customer settlement transactions and other transactions individually approved by the authorities) and its business of accepting new deposits of margins, etc. for OTC derivatives transactions for the period from November 10, 2011 to December 9, 2022 (except when the Company is ready to promptly return margins, etc. deposited by investors). (excluding cases where the authorities approve that the Company is ready to promptly return margins, etc. deposited by investors).
Order to Hold Assets in Japan
From November 10, 2022 to December 9, 2022, FTX Japan must hold assets in Japan equivalent to the amount of liabilities (including the amount of guaranteed liabilities) to be recorded in the liabilities section of their balance sheet, less the amount of liabilities to non-residents, on each day.
Business Improvement Order
(1) Accurately identify investors and accurately identify assets deposited by investors.
(2) To preserve the assets deposited by investors and to refrain from any acts of improperly expending the company’s assets.
(3) Take all possible measures to protect investors while giving due consideration to fairness among investors.
(4) Ensure that investors are properly informed about the preservation of investors’ assets, and take appropriate measures to deal with investors.
(5) Submit a business improvement plan in writing regarding 1) through 4) above by November 16, 2022.
(6) Report in writing on the progress and implementation status of the business improvement plan every month until its implementation is completed, by the 10th of the following month.
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