The Japanese Financial Services Agency (FSA) released the results of a variety of on-site inspections that took place in 23 cryptocurrency exchanges around the country. What it found led it to the conclusion that it should be harsher when it comes to accepting new applications from exchanges hoping to attain an operating license.
From this point onward, any new exchange will have to have an on-site visit by government inspectors that would analyze their business for certain criteria, including their business models.
“We will enrich document and evidence confirmation about the situation of the company’s business plan and the effective internal control system and the situation of the governance system that gives priority to user protection, performing the verification on-site and through hearings,”
the document said.
With regards to Coincheck, an exchange that suffered losses of hundreds of millions of dollars due to a compromise of its servers, the FSA said that the exchange would be “verified separately.”
Monex bought the exchange after it was hacked and implemented a number of reforms with the hopes of conforming to any future regulations that the Japanese government may enact.
In addition to its policy recommendations, the FSA also noted that “voluntary regulatory organizations are required to establish an effective internal control system.” This may mean that the financial regulator might also inspect self-regulating bodies in the future as well.
This is not a surprise, as the government first adopted rules for cryptocurrency exchanges when Mt. Gox suffered a breach in 2014. However, the breach of Coincheck has renewed interest from the FSA to regulate the exchange environment, as it believes that this hack is proof that older rules were not sufficiently rigorous.
Truthfully, there’s no way of telling whether these inspections will result in fewer breaches in Japan, but it might discourage new exchanges from saturating a market that’s already experiencing a shortage of competent engineers.