Japan’s financial regulator has reportedly introduced new screening requirements for crypto exchanges seeking approval to operate in the country. The agency now extends its focus beyond the registrants’ financial health and system safety measures. Among additional criteria are the assessment of the companies’ decision-making process and their links to antisocial groups.
New Exchange Requirements
Japan’s top financial regulator, the Financial Services Agency (FSA), has “tightened its registration screening for cryptocurrency exchanges to see whether they are properly conducting risk management,” the Japan Times reported, quoting unnamed sources.
Specifically, the sources revealed on Saturday that the agency has “increased the number of questions asked when screening applications to about 400 items, up fourfold,” the news outlet conveyed. “Previously, the questions only covered such items as an applicant’s financial status and measures to ensure system safety.”
The sources also told the news outlet:
It [FSA] now obligates applicants to submit minutes of board meetings so it can check whether enough discussions have been held about measures to sustain the company’s financial health and ensure the security of its computer system.
The agency plans to “assess whether company executives are properly involved in decision-making by perusing the records of board meetings,” the sources clarified. “The upgraded screening process also regularly reviews the composition of an applicant company’s shareholders, while examining if an internal system is in place to check for links to antisocial groups.”
On-Site Inspections Reveal Sloppiness
After the hack of Coincheck in January, the FSA started the on-site inspections of 23 crypto exchanges. The agency recently released a report of its findings which “revealed sloppy internal controls,” including a “lack of board meeting minutes,” the publication detailed.
During the inspections, the agency issued business improvement orders to six fully-licensed cryptocurrency exchanges. In addition, 13 of the country’s 16 quasi-operators, or those crypto exchanges that are allowed to operate while their applications are being reviewed, have withdrawn their applications. Only three quasi-operators are left: Coincheck, Lastroots, and Everybody’s Bitcoin. This week, the e-commerce giant Rakuten Inc. announced that it is acquiring Everybody’s Bitcoin and will begin operating the exchange under the group’s name.
Meanwhile, about 160 crypto exchange operators are now interested in entering the Japanese market, the FSA told news.Bitcoin.com last week. This is a substantial increase from the agency’s previously disclosed total of 100 companies.