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Japan’s FSA Outlines 5 New Criteria for Crypto Exchange Regulations

Japan’s Financial Service Agency (FSA), responsible for the regulation of cryptocurrency operators is going to launch stricter regulations for exchanges according to Nikkei._副本

This could be seen as an effort to secure domestic crypto exchanges and prevent them from hacker attacks. There are many security breach took place in Japan-based exchanges. In January 2018, Coinckeck was hacked and lost $523 million USD in NEM tokens and has led to a regulatory re-examination of Japan’s crypto industry. FSA is imposing a new framework for further regulation.

According to FSA, exchange operators in Japan was required to monitor suspicious user accounts more frequently. They also need to separate shareholders’ account from managment and store crptocurrency in an off-line storage system. Crypto exchanges are required to meet five criteria:

Firstly, cryptocurrency exchange platforms have to adhere robust security standards. For instance, they would not be allowed to store digital assets in an online wallet and applying two-factor authentication for assets transfers.

Secondly, exchanges need to develop thorough know-your-customer (KYC) processes. The customer verification process, especially for large transfers, may effectively prevent money laundering activities.

Thirdly, FSA will require exchange platforms to put more efforts to client asset management activities. Trading platforms should conduct regular daily checks on account balance to prevent manipulation. They are also required to work on appropriate rules to prohibit their employees from manipulating client funds.

Fourthly, specific cryptocurrencies species would be restricted and banned from listing on exchange platforms. The FSA would blacklisted cryptocurrencies offer a higher level of anonymity because they are more likely to be used in money laundering activities.

Finally, crypto exchange operators are also required to clarify the  organizational structure and the operational model of their trading platforms. The development and asset management roles must be separated in order to prohibit internal system manipulation.

The FSA would apply the new framework in new registration applications, likely this summer. The existing exchange operators will also be required to meet the new criteria as well.

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