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
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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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Japan struggles to hamper int’l cryptocurrency money laundering operations

TOKYO — Loose overseas regulation of virtual currencies has prompted increased money laundering among some designated Japanese organized …

TOKYO — Loose overseas regulation of virtual currencies has prompted increased money laundering among some designated Japanese organized crime groups, with the Mainichi Shimbun confirming one case where a total of some 30 billion yen was funneled through various overseas exchanges since 2016.

While the Japanese government has recently moved to strengthen measures against money laundering, these are limited to the country’s boundaries. Grasping the situation of money being transferred through anonymous overseas accounts is a problem that cannot be solved without international cooperation.

In a bar on the second floor of an old building just off a street bubbling with nightlife in Tokyo’s Akasaka district, a 30-something member of a designated organized crime group and a Chinese man have agreed to meet once a month. The bar is a haven for people who exchange information about virtual currencies online through members-only blogs and social media sites to meet face-to-face. Japanese and English fly back and forth with specialized terms relating to cryptocurrencies mixed in.

“There were no problems,” says a Chinese man to the gang member on a night in mid-April as he hands over a USB drive. On the drive is a data file named “ZDM” filled with numbers and English notations. This is the record of money laundering using the difficult-to-trace currencies “Zcash,” “DASH” and “Monero.”

The file begins from June 2016, and shows the gang’s capital at a total of 29.85 billion yen post-laundering. The most recent record for February shows a total of some 130 million yen run through the system via several hundred transfers. The amount was lower than normal, but due to scandals surrounding cryptocurrency exchanges at the time, the gang member simply commented, “We didn’t want to draw any attention to ourselves, so this will do.”

The men then move to a room in an apartment building within walking distance called “base camp.” There, eight men and women stare into computer screens. The Chinese national reveals they are Japanese in their 20s and 30s — mostly engineers and students. These members first convert the group’s capital to blockchain currencies such as Bitcoin and Ethereum at Japanese exchange operators. These groups spread out the virtual currency by sending the money to five or six accounts held at exchange companies that do not require identification documents like a passport to open an account, such as the Russian exchange “YoBit.”

From there, the Bitcoin or Ethereum is converted into “Zcash,” “Dash” and “Monero” — ZDM. In terms of privacy protection, trading logs in the blockchain for these three currencies are not made public, and both the sender and receiver of the money can do business anonymously. The members used several exchange operators to move the virtual currency over dozens of transactions to cover their tracks, with collaborators in Russia making the last transaction into the local physical currency.

The personnel and equipment is all provided by the gang. “We have bases just like this all over the Tokyo area,” the gang member explains. “The most important thing is to process the money in small amounts.”

It has been less than 10 years since virtual currencies came onto the financial scene. Still, the Chinese man says, “Gangs were attracted to the anonymity associated with cryptocurrencies from the beginning. Now, its use is not limited to just money laundering, but is also being used as a venture to generate capital.” Of the total of 29.85 billion yen recorded returned to the group via foreign exchange operators in the file he gave the gangster, he commented, “I was given roughly 35 billion yen. Five billion yen was the service fee.”

“It’s a typical money laundering scheme. In a way, I’m not surprised,” said a senior official at the Financial Services Agency (FSA). “If you are going to do something illegal, then everyone knows to use the ‘three anonymous siblings,'” the official continued, referring to Zcash, DASH, and Monero. In Japan, the only cryptocurrency exchange that dealt with the three siblings was scandal-hit firm Coincheck Inc., from which thieves siphoned off 58 billion yen worth of “NEM” currency. However, after Coincheck was bought out by Monex Group Inc., the new owner expressed its intention to cease trading in those virtual currencies.

The FSA now administers the revised Payment Services Act, which was introduced in April 2017. The new law required cryptocurrency exchanges to register with the agency and for users to provide proof of their identity. In addition, divided asset management and allowing for outside monitoring of accounts was also introduced. Following the Coincheck case, the FSA inspected cryptocurrency exchanges to find many problems in the anti-money laundering measures taken by those domestic firms, issueing orders to improve their business operations. .

However, even with the revised laws, nothing can be done to regulate the operating practices of exchange firms overseas. Once the money is wired abroad, it is difficult to grasp the whereabouts of the currency from Japan, especially when accounts that do not require official identification to open are used.

“It’s nearly impossible for Japan to handle the problem alone,” the FSA official explained. “Even if trade is restricted to only domestic transfers or monitoring is enhanced, it’s still not enough to counter money laundering. It would be best if all the group of 20 industrial and emerging nations and regions (G-20) would take the same steps toward prevention.”

Some countries are already moving in this direction. The Chinese government shut down exchange offices, while the South Korean government outlawed the practice of exchange operators issuing their own virtual currency to raise capital — or “initial coin offerings (ICO).” Meanwhile, India is set to outlaw the trade of cryptocurrencies all together, and the European Union is drafting legislation that would prioritize the protection of users. The United States is considering revisiting how the system is structured.

Still, it is unclear if all nations will take the same steps toward countering money laundering and other crimes. While the G-20 did decide in March this year to improve the system and come out with concrete measures to do so by July, it seems that it may still take time until agreement and enactment of those new rules is realized.

(Japanese original by Atsushi Kubota, Business News Department)

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