[2018-09-03] Japan Ramps up Scrutiny of New Cryptocurrency Exchange Applicants

[moriskarlov]

Japan’s primary financial regulator has dramatically increased its screening process of applicants registering to open cryptocurrency exchanges, according to a local report.

The Financial Services Agency (FSA), Japan’s financial regulator and watchdog, has “increased the number of questions asked when screening applications to about 400 items”, a four-fold increase from previous norms, the Japan Times reported on Sunday.

Following a revision to the Payment Services Act, Japan legally recognized cryptocurrencies like bitcoin as a legal method of payment in April 2017. Under the legislation, operators of domestic cryptocurrency exchanges are also required to register with the FSA to earn a license from the regulator.

“After the amended Payment Services Act took effect on April 1, 2017, only business operators registered with competent Local Finance Bureau are allowed to operate virtual currency exchange service,” the FSA said in its official guidelines [PDF] last year.

Tightening the Screening Process

Now, the regulator and watchdog has also mandated applicants to submit detailed reports (minutes) of formal board meetings to assess if the company has sufficiently discussed measures to ensure the security of its customers’ assets and its own internal cybersecurity system alongside its financial health.

The FSA will then conduct on-site inspections of these exchange operators to verify the accuracy of those answers submitted in the screening process, the report added.

While the previous 100-point questionnaire predominantly focused on system safety security and the applicant’s financial backing, the agency will now begin looking into records of board meetings as well checking the “composition of an applicant company’s shareholders,” the report added.

Citing sources, the Japan Times also claims that the agency will examine the efficiency of exchanges’ internal systems installed to “check for links to antisocial groups.”

The regulator has narrowed down on the crypto exchange industry following a $530 million cryptocurrency theft from unlicensed Tokyo-based exchange Coincheck in January.

See more - https://www.ccn.com/japan-ramps-up-scrutiny-of-new-cryptocurrency-exchange-applicants/

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[vit05]

It seems that these changes in the process of opening and maintaining the Exchanges are only to ensure that customers have transparency and quality in the services provided.

That would be a sign of market maturity. Where the government already looks at these companies naturally and expect them to provide good service to their audience. Having companies like these in serious countries that do not just serve as a tax haven is a very important thing for all of us.

[audaciousbeing]

Reading the provisions of the additional requirements, its obvious that Japan is engaging in serious business and their decision to recognize bitcoin as a legal tender in 2017 is followed by series of action to shame other countries who are waiting for them to fail then use their failure to defend their position for initially refusing to allow crypto and be commended for seeing the "future".

I would't blame them one bit or apportion a bit of excess to their approach as I have always been an advocate that exchange platforms providers should start being held responsible for the assets kept in their custody and in ensuring that, every information they provided must add up which is why the physical verification and series of security questions in the new process is a welcome development.

The only part they have not touched which I believe its going to happen in the near future is the deposit and the insurance that they must be forced to undertake. All of the procedures can only prevent but not stopped it which means people needs to be sure that when the inevitable eventually happen, their funds can be returned.

[timerland]

This might actually be a good thing.

The exchanges will be increasingly regulated which means that the probabilities of a hack due to the lack of security measures on an exchange, or an exit scam on the exchange's part will become smaller and smaller from previously.

I'd expect this to be the norm in other countries in coming years as well. Every single country will most likely be tightening up their regulations in the future, whether it's for good or for bad. This one here isn't necessarily a bad thing at all.