Japanese regulators have granted approval to FTX Japan to extend the suspension of its business operations by three months.
As CoinGeek previously reported, the Financial Services Agency (FSA) issued a business suspension order to FTX Japan, the Japanese subsidiary of collapsed global exchange FTX in mid-November. The FSA order prohibited the exchange from conducting any business until December 9.
The watchdog has now granted a three-month extension on this order.
Announcing the extension, the Kanto Local Finance Bureau of the FSA revealed that it had extended the suspension to March 9, 2023. It reiterated that a key reason for the extension was that the digital asset exchange still hadn’t been able to return the funds it owed its users. By keeping its operations suspended, the regulator seeks to ensure that none of FTX Japan’s assets flow out to its global parent, whose founder has now been arrested.
FTX Japan has maintained that it’s working on a plan to refund its users, claiming that its users’ assets hadn’t been affected by the global FTX chaos. The parent company has also previously clarified that the Japanese subsidiary was independent and that its funds hadn’t been comingled with its parent’s funds.
While it may have the funds, the challenge for FTX Japan is that it still relies on the same system as its parent company.
The local exchange has been working on circumventing the global system and releasing the funds to its users. One of the proposals is to revive Liquid, the defunct exchange that Sam Bankman-Fried acquired earlier this year to get a gateway into Japan.
However, according to some of its current and former employees, this could be more complex than advertised.
“That’s only if they will be able to rebuild the platform, make sure FTX has no control, or there’s absolutely no back door for someone to access it while [customer assets] are in transit. [They must move] from a potential cold wallet to the [Liquid] platform, to users, to a potential user’s own cold wallet,” a former FTX Japan employee told a news outlet on condition of anonymity.
According to the employee, this is even harder given that most of FTX Japan’s key employees have quit: “First off, good luck to them without engineering staff and [with] the few people remaining.”
FTX Japan customers still hopeful
Even as the global SBF empire collapses, FTX Japan’s customers remain cautiously confident that they will not lose their assets. This confidence stems largely from Japan’s stringent regulations, which are geared towards protecting investors.
Japan used to be one of the laxest jurisdictions for digital asset companies, but this has dramatically changed over the years. The country’s approach was greatly influenced by the failure of Mt. Gox in 2014 and the 2017 hacking of Coincheck exchange, where over $500 million was lost.
Since then, Japan’s regulators have required exchanges to store at least 95% of their users’ assets in a cold wallet. Further, for the 5% of assets they hold in hot wallets, they must store a similar amount of their own assets in cold wallets. As such, in theory, FTX Japan had 100% of its users’ assets in cold wallets, segregated from the global parent company.
“In response to past incidents, Japan has developed a user protection framework and rigorously verifies crypto-asset exchange service providers’ compliance with these rules. We believe that this leads to the present results,” an FSA spokesperson told one outlet.
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