Daily Management Review

Japan tightens regulation of cryptocurrency exchanges


05/07/2018


Japanese regulators announced a tightening of regulation of crypto instruments in an attempt to prevent new problems after Coincheck exchange was hacked in January of this year.



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In order to protect investors and reduce the risks of large-scale hacker attacks, the Financial Services Agency of Japan (FSA) is introducing new, more stringent rules for the regulation of exchanges. They will be put into effect this summer and will be distributed to both existing and new platforms. Those do not comply with the new rules will have to curtail their activities.

The government shifted the focus on increasing consumer protection after it recognized virtual crypto currency as a legitimate payment method to support economic development. The agency said in April that new processes are needed in order to translate registration of crypto exchanges into a new plane beyond the simple provision of documentation, including analysis of operations.

The new rules can be divided into five main points. First of all, exchanges will be obliged to adhere to high standards in the field of security, including a ban on the storage of assets on online purses, as well as mandatory introduction of multifactor authentication.

Secondly, the exchanges will have to strengthen measures to identify customers. This requirement is mainly aimed at combating money laundering.

Third, the FSA requires that exchanges follow methodological guidelines for asset management. So, client assets should not overlap with the company's own assets. Balances on customers' accounts will be checked on a daily basis, and this is supposed to help in the fight against manipulation. In addition, regulators want the exchanges to use mechanisms that will not allow their employees to carry out transactions with their clients' assets.

Besides, it is planned to introduce a ban on trading crypto-currencies, aimed at increased user privacy. Thus, Monero, Dash and Zcash can be banned as the regulator believes that they are used to launder illegally obtained revenues.

Finally, the FSA intends to make the exchanges more transparent. To this end, exchanges will need to clearly distinguish their shareholders and managers, as well as employees involved in software development and asset management. This is done to prevent insider trading and other forms of internal manipulation.

Commenting on the new program, the FSA source said that the agency intends to adhere to a more objective approach to the regulation of exchanges. It is expected that the new requirements will come into effect as soon as the FSA starts accepting new applications for registration of stock exchanges. They will also apply to existing sites.

source: cnn.com






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