Japan’s biggest bitcoin exchange said it would halt taking
new business after regulators said it wasn’t doing enough to stop money
laundering and terrorist financing.
The move by Tokyo-based bitFlyer Inc. led to a drop in the
price of the cryptocurrency and highlighted how regulators in Japan, one of the
hot spots of cryptocurrency trading, are shifting their stance toward tighter
The Financial Services Agency said it found problems in
bitFlyer’s security system including its measures to prevent money laundering
and unauthorized access. An agency official said its inspections found
problematic accounts such as one registered using a post-office box as a
It also said bitFlyer board members who were supposed to
monitor management were mostly friends of the chief executive, Yuzo Kano, a
former trader at Goldman Sachs who co-founded the company. And the agency said
that when bitFlyer registered with the government last year, it provided some
false information about its plans to prevent “antisocial forces”—a Japanese
euphemism for organized crime—from using the exchange.
BitFlyer apologized to its customers and said it would halt
taking new customers until it addressed the regulators’ findings.
“Our management and all employees are united in our
understanding of how serious these issues are,” bitFlyer said. Its statement
didn’t address the corporate governance issues or the alleged false
information, and company representatives didn’t answer calls seeking comment.
A tweet on Mr. Kano’s verified Twitter account didn’t address
specific allegations but said, “I take this action seriously and will exert
every effort to improve.”
The statement said bitFlyer planned to recheck the
identities of existing customers after it found flaws in its earlier processes.
It is set to submit its plan for improving its operations to the Financial
Services Agency by July 23.
The agency on Friday also issued business-improvement
orders to five other cryptocurrency exchange operators.
Japan is one of the
more friendly environments for bitcoin. Rules put in place last
year established bitcoin as a legitimate payment method in Japan, helping the
digital currency flourish in the country. Typically between two-thirds and
three-fourths of bitcoin trading is yen-denominated, according to Coinhills.
The FSA, however, has stepped up
its warnings against many cryptocurrency exchanges after
Japanese exchange Coincheck Inc. was hacked and lost
cryptocurrency worth some $530 million in January.
The price of bitcoin fell sharply minutes after the FSA
announced its order and the cryptocurrency was trading below $6,400, according
to research site CoinDesk. Its low for the year came in early February at just under
$6,000. After surging nearly 1,400% last year, bitcoin has lost more
than half its value in 2018.
Masanori Kusunoki, chief technology officer at Japan
Digital Design Inc. and a member of a Financial Services Agency study group on
cryptocurrency exchanges, said the agency was shifting to a tighter stance
after initially seeing the new rules as a way to foster innovation in payment
“There’s a trend for regulators around the world to see
[cryptocurrencies] increasingly as a method of speculation. And if it is a tool
of speculation, they need to respond firmly from the perspective of investor
protection,” said Mr. Kusunoki, whose company is part of Mitsubishi UFJ Financial Group Inc.
He said that if exchanges address the problems, there was
still room for Japan to be a cryptocurrency leader. “It could actually spur the
maturation of the market and ultimately lead to greater competitiveness.”
for the original article from The Wall Street Journal.