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Japan’s Financial Services Agency (FSA) on Thursday punished seven digital currency exchanges, demanding that two of them halt operations, Reuters reported. The regulator is moving to beef up consumer protection after the theft of $530 million worth of digital coins from Tokyo-based Coincheck in what is considered the largest cryptocurrency heist to date.

The latest crackdown follows FSA’s investigation into cryptocurrency exchanges failing to comply with anti-money laundering procedures and employing ill-trained staff. In one case, the employees of a crypto exchange “misappropriated” cryptocurrencies for personal gains, the regulator said.

A senior FSA official told reporters in Tokyo that Coincheck had sufficient funds to reimburse the customers who lost money in the theft of 523 million XEM units in late January. Coincheck is scheduled to announce its reimbursement plan later in the day.

The regulator suspended the operations of Bit Station and FSHO for one month effective immediately and demanded business improvement plans from five other crypto exchanges: Coincheck, Mr. Exchange, GMO Coine, Tech Bureau, and Bicrements.

The suspension order against Bit Station came after FSA investigators found one of its senior employees using a customer’s Bitcoin for personal purposes. As a result, the exchange has pulled out its application for authorization.

Two other exchanges, BitExpress and Raimu, have also withdrawn their authorization applications although they have not been penalized by the FSA. The three operators are required to return cryptocurrencies and funds they hold for their customers or close shop.

There are currently 32 digital currency exchanges doing business in Japan, with 16 of those being licensed operators. The rest, including Coincheck, have provisional authorization because they existed before the passage of a law requiring registration and were allowed trade while their applications were being processed.

FSA’s surprise visits

The FSA conducted on-site inspections at local digital currency exchanges last month to determine their preparedness against hacking attacks.

The visits came after the Coincheck office raid following the theft of the XEM coins.

According to reports, the watchdog has determined that unregistered operators are "particularly problematic." It is recommending that the penalized exchanges comply with government requirements and complete their registrations fully or drop their applications, like BitExpress, Raimu, and BitStation.

At the same time, the FSA is asking CoinCheck to submit a progress report about its corporate governance, money laundering, and management structure policies.