17 November 2018

Japan’s Biggest Bitcoin Exchange Suspends New Business

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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 controls.

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 mailing address.

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 systems.

“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.”

Click here for the original article from The Wall Street Journal.  

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