New Japanese crypto exchange regulations as FSA wraps up visits

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Japan’s Financial Services Agency (FSA) recently paid a visit to several cryptocurrency exchanges in the country. The agency reportedly found a number of issues, including lack of compliance and internal audits, poor corporate governance and poor business models. As a result, it has determined that several changes need to be made to the regulatory framework of new companies looking to receive a license to launch an exchange.

New exchanges, as part of the FSA’s due diligence processes for licensing requests, will all have to submit to an on-site inspection at an early stage of the process. The agency will also begin to put the platform’s business models under a microscope throughout the duration of operations.

The investigation found that exchange operators weren’t keeping up with maintenance of their internal control systems, noting that these controls were not on par with the expansive growth in transaction volumes. The FSA indicated that the total amount of digital assets held by Japanese exchanges jumped to about $7.1 billion in less than a year—more than six times the amount seen a year ago. However, the staff managing the exchange operations hovers at under 20, indicating that, on average, a single employee is responsible for each $29.7 million in digital assets.

As in the past, the agency also indicated that several exchanges are still not doing enough to control possible money laundering activities.

New exchange registrations will now pick up following the new regulations. They had all but stopped after the country’s Coincheck exchange was hacked in January, leading to a $532-million crypto theft.

The FSA has continuously worked on improving the state of crypto exchanges in the country, including new stipulations introduced this past May that included tougher restrictions on transactions related to digital currencies that have an extreme focus on anonymity. The improvements aren’t done yet, though, and the agency said that it will conduct “substantial” ongoing reviews and that it will always focus on investor protection.

In July, the watchdog said that it was reviewing the possibility of making legal changes to exchange regulations. It also went through a restructuring designed to help it tackle issues related to cryptocurrencies and the FinTech industry.