Japan's Financial Watchdog Sets Out New Requirements For Crypto Exchanges

Japan’s financial watchdog, the Financial Services Agency (FSA), has laid out yet further regulatory stipulations for domestic crypto exchanges, Cointelegraph Japan reports today, May 6.

The regulator is reportedly intensifying its efforts to prevent a repeat of January’s $532 mln hack of crypto exchange Coincheck, the biggest single exchange hack in the history of the crypto ecosystem.

As Cointelegraph Japan reports, an FSA source told local news outlet Nikkei Asian Review that identifying potential risks in advance has been a challenge for the watchdog. The source reportedly told Nikkei that "without the necessary know-how, we've been feeling our way through the dark on how thoroughly we should check these different aspects.”

The new framework entails investor protection measures and attempts to rehaul exchanges’ internal management systems.

According to Nikkei, exchanges will now be required to monitor customer accounts multiple times daily for suspicious fluctuations, manage client assets separately from those of the exchange, and store crypto holdings on offline systems only. They will also face stricter anti-money-laundering (AML) measures, which demand know your customer (KYC) checks, such as ID verification, and multiple-password protection for large transfers.

The measures notably also confirm that government-registered exchanges will now face tight restrictions – effectively a ban – on the trading of anonymity-oriented altcoins, such as Dash (DASH) and Monero (XMR).

The FSA will send inspectors to both new and existing operators to check compliance with the new measures, Nikkei reports further.

A new self-regulatory body for Japanese exchanges was convened last month to provide assistance to domestic operators, some of whom have buckled under escalating pressure from the FSA, whose measures have included on-site flash inspections, temporary suspensions, and penalties. In April, international crypto exchange Kraken announced it would be ending its services in Japan, citing rising costs of business.