Tokyo: As per the local reports, those looking forward to opening a new cryptocurrency exchange in Japan have to undergo a strict scrutiny process now. The financial regulator of Japan has increased the screening process for applicants.
According to a report published in the Japan Times, a four-fold increase from the previous norms has been made by the Financial Services Agency of Japan. The financial watchdog and regulator of Japan have increased the number of questions to about 400 times for the applicants aspiring to open cryptocurrency exchange in Japan.
Following a revision to the Payment Services Act, Japan legally recognized cryptocurrencies like bitcoin as a legal method of payment in April 2017. Under the legislation, operators of domestic cryptocurrency exchanges are also required to register with the FSA to earn a license from the regulator.
Last year official guidelines of FSA read, “After the amended Payment Services Act took effect on April 1, 2017, only business operators registered with competent Local Finance Bureau are allowed to operate virtual currency exchange service.”
Now, the regulator and watchdog have also mandated applicants to submit detailed reports (minutes) of formal board meetings to assess if the company has sufficiently discussed measures to ensure the security of its customers’ assets and its own internal cybersecurity system alongside its financial health.
The FSA will then conduct on-site inspections of these exchange operators to verify the accuracy of those answers submitted during the screening process, the report added.
Further, it said, while the previous 100-point questionnaire predominantly focused on system safety security and the applicant’s financial backing, the agency will now begin looking into records of board meetings as well checking the “composition of an applicant company’s shareholders”.
Citing sources, the Japan Times also claims that the agency will examine the efficiency of exchanges’ internal systems installed to “check for links to antisocial groups.”
The regulator has narrowed down on the crypto exchange industry following a $530 million cryptocurrency theft from unlicensed Tokyo-based cryptocurrency exchange Coincheck in January.
Notably, the FSA issued ‘business improvement orders’ to six licensed cryptocurrency exchanges following on-site inspections wherein the regulator determined some of Japan’s largest cryptocurrency exchanges were lacking robust management systems and anti-money laundering measures.
As reported by CCN in early July, the FSA is also considering a revision of its crypto-regulations altogether by bringing exchanges under the purview of the Financial Instruments and Exchange Act (FIEA). If enacted, cryptocurrency exchanges will be required to manage customer funds separately from corporate assets under robust investor protection norms applicable to traditional stock brokerages.
The reported fourfold increase in questions during the screening process comes despite the FSA’s new chief ruling out “excessive” regulations upon the sector less than a fortnight ago.