Japan’s FSA Requires Improvements from bitFlyer, 5 Other Exchanges
Japan’s financial regulator has sent business improvement orders to six local crypto exchanges after finding several problems with their security systems.
Japan’s Financial Services Agency (FSA) has dispatched business improvement orders to six local crypto exchanges after an inspection that discovered several issues, including problems with their anti-money laundering (AML) systems. One of the targeted exchanges is Japan’s biggest operator, bitFlyer, which was found to have security problems, the FSA said.
In the wake of the regulatory action, bitFlyer announced it was suspending the creation of new customer accounts until it fixes the issues. Among the exchange operators targeted by the FSA are Quione, Tech Bureau Corp, and Bitbank.
In addition to having inadequate measures to prevent AML and terrorist financing, bitFlyer is more concerned about cost-savings rather than ensuring quality security, according to the FSA. The regulator is worried that the exchange’s management does not put enough effort into monitoring operations.
BitFlyer published a statement on its webpage, saying:
“Our management and all employees are united in our understanding of how serious these issues are.”
The orders sent by the FSA demonstrate that even exchange operators getting their license after the updated payment services law have not set up control systems meeting the required standards.
According to bitFlyer, the FSA has required of the exchange to take the following measures:
- Perform an intense review of the management system: A comprehensive evaluation of current management protocols.
- Build out risk management system for anti-money laundering and combating the financing of terrorism: Enhancing systems to prevent money laundering and terrorism financing.
- Build out management system for rejecting antisocial forces, etc.: Implementing controls to block involvement with undesirable entities.
- Build out management system for user assets and take a managerial approach to books and documents: Strengthening oversight of user funds and financial records.
- Build out management system for user protection measures: Introducing additional safeguards for customer interests.
- Build out management system for system risks: Upgrading protocols to mitigate technological and operational risks.
- Build out management system for user information safety: Enhancing the protection of customer data.
- Build out management system for ensuring the appropriate interactions for complaints from or consultations with customers: Establishing a robust feedback and issue resolution process.
- Build out risk management system for the listing of new virtual currencies: Ensuring new digital assets meet regulatory risk criteria.
- A third party shall verify the improvements’ appropriateness and effectiveness: Mandating external validation of all implemented measures.
BitFlyer has to come up with a business improvement plan by July 23, 2018. The exchange apologized for the situation and showed its readiness to comply with the requirements.
The regulator is conducting its third operation against several local cryptocurrency exchange services, aiming to transform the industry into a safer place.
The FSA’s restrictive moves come after a major hacking attack that robbed Coincheck of $530 million worth of NEM. The breach took place in January 2018 and confirmed the insufficient security measures implemented by operators.
Since the Coincheck incident, the regulator has rejected new applications by companies looking to establish crypto exchange and ordered some existing ones to change their approaches. At the beginning of March, the FSA punished seven exchange operators, demanding that two of them cease operations.
Following the news from Japan, the cryptocurrency market plunged into deeply bearish waters, with Bitcoin losing nearly 6% in a few hours. Ethereum, Bitcoin Cash, Litecoin, EOS, and Cardano shed more than 8%.
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