Why Japan Might Quash Brock Pierce’s Plans to Re-Launch Notorious Bitcoin Exchange Mt. Gox

Ever since the security breach of Coincheck in January 2018, formerly the largest crypto exchange in Japan, local authorities have imposed a stricter …

Ever since the security breach of Coincheck in January 2018, formerly the largest crypto exchange in Japan, local authorities have imposed a stricter process in granting licenses to trading platforms that support Bitcoin and other cryptocurrencies.

Recently CCN reported that Brock Pierce, the co-founder of Blockchain Capital, disclosed his plans to revive Mt. Gox, an exchange which lost billions of dollars in user funds stored in Bitcoin in 2014.

mt. gox bitcoinmt. gox bitcoinBy distributing $1.2 billion currently held by Mt. Gox and reinstating the company’s operations, Pierce wants to reimburse every creditor of Mt. Gox through a process called Rising Civil Rehabilitation.

But, to operate as a cryptocurrency exchange in Japan, Mt. Gox will have to obtain a license from the FSA. Will the now-defunct cryptocurrency trading platform successfully obtain the approval of the FSA?

It All Depends Whether Mt. Gox Could Distribute $1.2 Billion in Crypto Holdings

The FSA has become significantly more rigorous in approving cryptocurrency exchanges.

Last month, the FSA granted its first license to a cryptocurrency exchange in well over a year to Coincheck, the company that suffered a high-profile hacking attack which ultimately led to the loss of over $600 million in user funds.

Main takeaways from Coincheck press conf:

– only NEM impacted

– plans to continue operating, restart trading

– not clear on plan to repay customers

– no multisig💀

– wouldn’t admit security was weak

– not sure how hacked, if domestic or foreign hackers

– CEO barely spoke

— Yuji Nakamura (@ynakamura56) January 26, 2018

It took Coincheck more than 12 months to relaunch and restore its operations after finding an investor that was capable of paying back users that were affected by the security breach.

Monex Group, the parent company of Coincheck, said:

“Coincheck Inc announced today that it has registered with the Kanto Financial Bureau as a cryptocurrency exchange agency in accordance with the Payment Service Act, effective January 11, 2019.”

However, the Mt. Gox case is arguably worse than Coincheck because of the complexities involved.

Currently, Mt. Gox – led by Brock Pierce – is focused on distributing $1.2 billion in Bitcoin to creditors so that the firm can restructure and ready for a relaunch.

The core problem with the Mt. Gox case is that there is a pending $16 billion lawsuit filed against the company by CoinLab which reportedly alleged the Japanese exchange for breaching a contract.

The case is not filed against Mt. Gox but rather against the creditors of Mt. Gox, as Mark Karpeles, the former CEO of the exchange, explained.

In an event in which the court sides with CoinLab and the lawsuit is settled, the amount of compensation Mt. Gox could be ordered to pay will have to be paid for by the creditors.

Simply put, if CoinLab wins the lawsuit, the $1.2 billion holdings of Mt. Gox, which was planned to be distributed to creditors, will have to be used to settle the case.

“This lawsuit today is not CoinLab vs. MtGox, but CoinLab vs. the MtGox customers, now creditors, who have done nothing to deserve being involved in this,” Karpeles said in May 2017.

It Could Take a Long Time For Mt. Gox to Relaunch

Coincheck needed a full year to relaunch and restore its operations even after the company found an investor which promised to reimburse users of the exchange.

The Coincheck case also did not have pending lawsuits or complaints in the magnitude of Mt. Gox that slowed down the process of the restoration of the company.

As of February, there are too many variables involved in Mt. Gox that could prolong the process of relaunching the infamous Bitcoin exchange.

The community has responded positively to the plans of Brock Pierce to lead an initiative that could potentially restore the reputation of the global cryptocurrency sector and reimburse all of the creditors of the exchange.

Hey @brockpierce My losses from MtGox inspired me to create the glass books transparency protocol in 2014 and then launch https://t.co/ZFal4LaVyS to be the most transparent exchange in the world. If you want help in the resurrection let’s talk.https://t.co/NSL3XGEeuM

— Vaultoro J.Scigala (@Vaultoro) February 9, 2019

But, considering the FSA’s tightening of policies surrounding cryptocurrency exchanges and the variables in the Mt. Gox case, it could take a significantly longer time than Coincheck to revive Mt. Gox.

Bitcoin Image from REUTERS / Kim Kyung-Hoon

Coincheck Finally Gets Japan FSA’s Approval As A Cryptocurrency Exchange

Japan’s Financial Services Agency (FSA) has been very strict with its approval for a cryptocurrency exchange to legally operate in the country.

Japan’s Financial Services Agency (FSA) has been very strict with its approval for a cryptocurrency exchange to legally operate in the country. After almost a year since its last approval, cryptocurrency exchange Coincheck, which was hacked early last year, has become the 17th fully-registered crypto exchange in the country.

The FSA announced on Friday that it has approved the registration of Coincheck as a cryptocurrency exchange. Under the country’s Payment Service Act, all crypto exchanges must register with the FSA. After the hack the exchanged was acquired by Monex Group and numerous improvements were made by the exchange to earn this approval.

The Monex Group issued a press release on Friday with registration details. The announcement reads:

Coincheck Inc … announced today that it has registered with the Kanto Financial Bureau as a cryptocurrency exchange agency in accordance with the Payment Service Act, effective January 11, 2019.

According to the FSA’s website, Coincheck handles nine cryptocurrencies: BTC, ETH, ETC, LSK, FCT, XRP, XEM, LTC, and BCH.

Impending Approval

Coincheck suffered a hack in January last year after which the platform suspended certain services. This was done in order “to focus on enhancing governance and internal controls by developing business improvement plans and carrying them out,” as explained by the company. On Nov. 26, services for tradable cryptocurrencies were resumed including depositing, remitting, purchasing and selling.

Initially, Coincheck applied for registration with the FSA in September 2017. While FSA approved 16 crypto exchanges throughout that year, Coincheck was under evaluation by the regulator. The exchange was classified as a deemed dealer, which means it was allowed to operate while the FSA reviewed its application.

The Improvements

Coincheck outlined six areas where the platform had addressed in order to comply with the FSA’s registration requirements. The exchange has:

“improved governance fundamentally,”

revisited the business strategy and ensured customer protection,”

strengthened governance control by the board,”

“clarified risks on cryptocurrencies being offered by the company,

“implemented measures on anti-money laundering (AML) and countering the finance of terrorism (CFT),” and

revised organizational structure to ensure validity.”

Furthermore, the company assured investors that it “does not conduct cryptocurrency transactions on its own account,” adding:

Coincheck Inc. does conduct cover transactions with domestic and overseas cryptocurrency exchanges speedily for the positions that resulted from the selling and buying transactions with customers.

Getting an approval, more than a year later is definitely a feat for the platform. Last cryptocurrency exchange, Bitocean, was approved by the FSA on Dec. 26, 2017. After the hack on Coincheck, the agency decided to slow down the rate of approvals and began tightening its oversight of crypto exchanges, forcing 13 out of 16 deemed dealers to exit the market.

It was reported last year, that FSA received over 190 Cryptocurrency Exchange license applications, and only one of them has been approved till date.

Read more: Japan’s Financial Regulator Denies Interest in Bitcoin ETF

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Japan Approves 17th Cryptocurrency Exchange – Its First in Over a Year

It has been over a year since Japan’s Financial Services Agency last approved a cryptocurrency exchange to legally operate in the country. Coincheck …
Japan Approves 17th Crypto Exchange – Its First in Over a Year
Exchanges
3 hours ago

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By

Kevin Helms

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It has been over a year since Japan’s Financial Services Agency last approved a cryptocurrency exchange to legally operate in the country. Coincheck, which was hacked early last year, has become the 17th fully-registered crypto exchange in the country. The exchange has made numerous improvements after it was acquired by Monex Group.

Also read: Indian Supreme Court Moves Crypto Hearing, Community Calls for Positive Regulations

FSA Finally Approves Coincheck

Japan Approves 17th Cryptocurrency Exchange – Its First in Over a YearJapan’s top financial regulator, the Financial Services Agency (FSA), announced on Friday that it has approved the registration of Coincheck as a cryptocurrency exchange. Under the country’s Payment Service Act, all crypto exchanges must register with the FSA.

The exchange’s parent company, Monex Group, also issued a press release on Friday with registration details. The announcement reads:

Coincheck Inc … announced today that it has registered with the Kanto Financial Bureau as a cryptocurrency exchange agency in accordance with the Payment Service Act, effective January 11, 2019.

Japan Approves 17th Cryptocurrency Exchange – Its First in Over a YearAccording to the FSA’s website, Coincheck handles nine cryptocurrencies: BTC, ETH, ETC, LSK, FCT, XRP, XEM, LTC, and BCH.

Japan Approves 17th Cryptocurrency Exchange – Its First in Over a YearAfter it was hacked in January last year, Coincheck suspended certain services “to focus on enhancing governance and internal controls by developing business improvement plans and carrying them out,” the company explained. On Nov. 26, services for tradable cryptocurrencies were resumed including depositing, remitting, purchasing and selling.

Coincheck originally applied for registration with the FSA in September 2017. While the regulator approved 16 crypto exchanges throughout that year, it continued to evaluate Coincheck. The exchange was classified as a deemed dealer, which means it was allowed to operate while the FSA reviewed its application.

Needed Improvements Made

Japan Approves 17th Cryptocurrency Exchange – Its First in Over a YearIn Friday’s announcement, Coincheck outlined six areas it had addressed in order to comply with the FSA’s registration requirements. The exchange has “improved governance fundamentally,” “revisited the business strategy and ensured customer protection,” “strengthened governance control by the board,” “clarified risks on cryptocurrencies being offered by the company,” “implemented measures on anti-money laundering (AML) and countering the finance of terrorism (CFT),” and “revised organizational structure to ensure validity.”

Japan Approves 17th Cryptocurrency Exchange – Its First in Over a YearMonex Group made an announcement on Dec. 25, explaining to investors that neither it nor Coincheck offers “cryptocurrency mining-related business including cryptocurrency mining itself.” This clarification followed the announcements by GMO Internet and DMM.com regarding their own mining operations. GMO Internet said it will no longer develop, manufacture, and sell mining machines. DMM.com is reportedly exiting the cryptocurrency mining business altogether.

Furthermore, the company assured investors that it “does not conduct cryptocurrency transactions on its own account,” adding:

Coincheck Inc. does conduct cover transactions with domestic and overseas cryptocurrency exchanges speedily for the positions that resulted from the selling and buying transactions with customers.

The approval of Coincheck comes more than a year after the last cryptocurrency exchange, Bitocean, was approved by the FSA on Dec. 26, 2017. The hack of Coincheck in January prompted the agency to slow down the rate of approvals and began tightening its oversight of crypto exchanges, forcing 13 out of 16 deemed dealers to exit the market. Nonetheless, the FSA told news.Bitcoin.com at the end of last year that more than 190 crypto exchange operators have expressed their intention of market entry.

What do you think of the Japanese regulator finally granting registration to Coincheck? Let us know in the comments section below.


Images courtesy of Shutterstock and Coincheck.


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Japan FSA: Over 190 Firms Strives to Offer the Crypto Industry Services

Moreover, the government aims to implement further regulations enhancing the security of consumers with respect to virtual currency investments.

The late January 2018 hack on the Tokyo-based Coincheck.com resulted in majorly unexpected challenges for the Japanese crypto-exchange operators unexpectedly. The loss of ¥58 billion worth of digital coins was responsible for the commotion in the industry. That hack prompted the country’s regulatory body to inspect all exchange companies unearthing problematic operations being conducted by most of them.

The Financial Services Agency (FSA) never approved any new exchange operators in the entire 2018. Experts and analysts are confident that the uncertainty for exchange companies will end soon in 2019. It is expected that more exchange firms will be licensed to operate in the country after being subjected to strict scrutiny by authorities. The new entrants are likely to rejuvenate the crypto-exchange industry.

Moreover, the government aims to implement further regulations enhancing the security of consumers with respect to virtual currency investments. Pina Hirano said that the groundwork to reinforce the Japanese crypto industry was laid out in 2018 ready for a rollout in 2019. Pina heads the Tokyo-based Blockchain Collaborative Consortium.

The Coincheck heist forced all major Japanese players in the country’s cryptocurrency industry to spend most of 2018 rechecking and redesigning all their security infrastructures. The regulatory body also urged the exchanges to create internal control and management systems big enough to let them manage a financial business seamlessly.

The Coincheck hack hit Japan’s crypto industry around 10 months after the country imposed regulations for the virtual currency exchanges operating in its jurisdiction. At the time, Japan was regarded to be miles ahead of other nation in the context of virtual currency regulations. The rules need operators to register with the central government and submit annual reports.

Japan FSA: Over 190 Firms Strives to Offer the Crypto Industry Services
Yusuke Otsuka, former chief operating officer at cryptocurrency exchange Coincheck Inc. / Bloomberg

The Challenges

All operators are required to confirm the identities of their customers to avoid cases of money laundering or terrorism using crypto-assets. The FSA said that the hack revealed that most operators majorly focused on making profits without following the set rules and regulations properly. Currency values spiked in the later months of 2017 reaching almost ¥700 billion which represents a six-fold jump compared to 2016.

However, during the spike, almost 75% of the exchange operators had less than 20 employees each. The FSA believes that the understaffing scenarios made most exchanges not to confirm their clients’ identities properly. After conducting on-site inspections of all crypto-exchanges, FSA discovered severe problems in the operation of eight registered operators.

The watchdog issued administrative orders requiring the exchanges to correct the problems. Some were required to implement stringent enough measures to avert cases of money laundering. The FSA was criticized for lack of effective rules and regulations. On its part, the regulator said that they never expected massive price fluctuations resulting from speculative traders.

The bubble spikes of their values left the existing exchanges unfit to deal with the resulting massive amount of trading. The higher prices have turned cryptos into speculative assets instead of futuristic monetary tools making all participants in this industry to focus on making quick huge profits.

Currently, the FSA is stricter when reviewing applicants wishing to dive into the exchange business. Due to that, 13 of the cautiously approved exchange providers have resigned from becoming registered operators due to their inability of meeting the high demands set by the watchdog. The screening of newcomers was put on hold in 2018 for the FSA to inspect all existing exchanges extensively.

On Friday, FSA approved Coincheck, now a group firm of Monex Group Inc., to resume operations. Hirano said that only responsible firms will enter the market in 2019 re-energizing the industry. Additionally, regulations will be revised to highlight lessons gained from the Coincheck and Osaka-based Tech Bureau Corp. debacles.

The Regulations

A notable rule under consideration by FSA is to demand exchange operators to put aside assets that match the values of currencies owned by customers in their online accounts. Cryptos held online are vulnerable to cyber-attacks. Thus, the assets will be needed for compensating investors in the case that their accounts are hacked and money stolen.

Last September, Tech Bureau lost bitcoins and other altcoins worth about ¥7 billion at the time and they were unable to compensate the victims. The firm went under receivership handing over its business operations to another exchange who promised to compensate the customers.

Another new possible regulation is for the need for crypto wallet providers to verify their users’ identities. Also, ads promoting cryptocurrencies as speculative assets and capping leverage for dependable margin trading were banned. But, a number of stricter regulations are expected to set the bar higher for new start-ups wishing to join the crypto-exchange industry.

The new regulations may contradict with FSA’s original policy to support the new industry by meticulously balancing freedom and regulations. However, experts like Kazuyuki Shiba, believe that stringent rules are vital due to the many cyber attacks arising against exchange operators in the past helping in the healthy growth of the market.

Exchange service providers will be needed to create new services that have a real value other than speculative profit-making trading activities. Money Forward Financial Inc.’s Junichi Kanda believes that the FSA wishes to offer value and convenience to users on top of trading activities. He also noted that major IT firms are waiting to join the new market and they may offer new crypto-services.

The Possibilities

New currencies with less volatility may be introduced in 2019 by new entrants to the industry. The FSA said that over 190 firms are interested in joining the crypto-exchange service providers’ industry. The notable names include MUFJ Bank, Mercari Inc., and Line Corp. Experts say that long-term growth will only be achieved if the participants shift from the speculative, profit-oriented approach.

The Japanese government has an incentive to push for a healthy crypto-business environment featuring enhanced consumer protection since the country will host the Group of 20 Summit in June 2019. Other governments are reluctant in implementing regulations on cryptocurrencies and Japan plans to introduce crypto-rules at the G20 Summit.

Experts agree that the bear markets of 2018 have inflicted damage to the crypto industry. The falling prices are forcing various firms to close down since it is hard for them to survive with the cryptos oscillating at low price levels. The cryptocurrency boom faded with many companies in 2018 but the potential pullbacks may attract more people to rejoin the crypto industry in 2019.

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Japan’s Financial Services Agency set to update cryptocurrency regulations in speculation …

In Japan, transactions involving five major virtual currencies totaled ¥69 trillion in fiscal 2017, roughly 20 times the level of the previous year, with the …

The country’s financial watchdog plans to impose stricter regulations on bitcoin and other cryptocurrencies in the wake of the massive theft at Coincheck Inc., a Tokyo-based virtual currency exchange operator, in January and the use of such digital money for speculative investments.

In April 2017, Japan revised the Payment Services Act to protect cryptocurrency users, introducing a registration system for dealers who exchange them with yen and other legal tender. The revision assumed wider use of cryptocurrencies for payments and remittances.

But speculative investment in cryptocurrencies increased steeply due to sharp rises in their value, making it essential for the Financial Services Agency to create regulations that respond to the situation.

With cryptocurrency prices skyrocketing, bitcoin, the most dominant cryptocurrency, temporarily saw its price soar above ¥2 million ($17,700) in December 2017 from below ¥200,000 earlier that spring. Although the price has plunged since then, it is still trading above ¥750,000 this week.

In Japan, transactions involving five major virtual currencies totaled ¥69 trillion in fiscal 2017, roughly 20 times the level of the previous year, with the number of cryptocurrency users reaching 3.5 million.

But the use of digital currencies for payments as alternatives to legal tender is limited and most transactions are aimed at capitalizing on price gains.

“Young users who had previously no connection (with cryptocurrencies) have increased at a breathless pace,” a senior official of a major exchange operator said.

The rapid growth of investments in cryptocurrencies can be attributed to an expansion of margin trading, in which investors with little capital could earn huge profits, or sustain massive losses, by borrowing money. While foreign exchange margin trading has a 25 times leverage limit, the absence of such a cap on cryptocurrency margin trading makes it possible for investors to experience wild financial swings, an exchange official noted.

As virtual currencies are outside the Financial Instruments and Exchange Act, which sets out anti-insider trading and other regulations, trading in them is “unchecked,” an FSA official said.

The FSA has focused its regulatory regime on electronic settlements, putting into force the Payment Services Act in 2010 to deal with integrated circuit cards issued by transport service operators, including East Japan Railway Co’s Suica card.

The legal revision in 2017 was designed to prepare for a sharp increase in online payments by means of digital currencies, due to concerns that regulations governing individual financial sectors, such as banks and brokerage houses, may not be relevant.

The agency devised the minimum necessary legal framework in order to “prevent a situation in which there is no law governing (cryptocurrencies) when they come into wide use,” a senior FSA official said.

But the use of virtual currencies has spread rapidly toward speculative investments rather than payments, contrary to the FSA’s expectations. In addition, digital currencies are now finding their way into corporate fundraising.

The cryptocurrency theft involving Coincheck exposed the sloppy management of customer assets by exchange operators.

In April, the FSA set up a panel of experts to discuss ways to close the gaps between regulations and actual practice for cryptocurrencies.

“Virtual currencies should be positioned as assets for investment, while a legal system to protect investors needs to be established as a matter of urgency,” an expert said.

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