Japan Will Tighten Cryptocurrency Exchange Registry Requirements

Today, it was reported that the FSA, the financial Japanese watchdog will impose tighter requirements for those businesses applying to become registered exchanges. This, according to internal sources of Nikkei Asian. The new registration requirements will be more difficult to satisfy and will include FSA inspections even before the exchange operates.
Now, for exchanges to operate in Japan will have to comply with several new conditions. First, the equipment that saves digital cryptocurrencies must be cold storage, that is, that those computers will not be connected to the internet. This, to secure investor’s money in case of an online security breach. Also, they will command exchanges to be more vigilant about money laundering schemes by enforcing KYC (know your customer) policies compliance and regular identity checks.
Also, something that had leaked before: cryptocurrencies that are anonymity or privacy-focused, and mask the transaction’s actors will be greatly reduced in their scope of action, or maybe will be even banned, as we reported here. This is also to prevent the use of exchanges to launder money and fund criminal activities indirectly. So cryptocurrencies like Monero and ZCash will be probably banned inside Japanese borders.
Lastly, but not less important, they will enforce roles separation to the internal employees and staff of the exchange, to avoid conflicts of interest and employees using information for their own profit.
All of this is clearly directed to restore the trust into the local exchange market after the infamous Coincheck hack when more than $500 million of NEM token were robbed from the exchange clients wallets. Since then, the FSA has tightened their controls. But as a result of this policies, many exchanges have found difficult to work in the country and some has even decided to abandon operations there. Kraken, the USA based exchange announced that it will cease exchange operations in Japan, citing operational costs as the main reason. Binance, another big exchange had regulation issues and also decided to move its headquarters to Malta.
Clearly, the Financial Services Agency is determined to protect investors from possible incident and crimes in the future, but it must find a balance between protecting investors and giving exchange operators breathing room. If it is unable to do, they will effectively hamper innovation and new exchange applications in the exchange market.

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