FSA Tightens Regulations on Crypto Exchanges

| Publish date: 09/03/2018
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The Japanese financial regulator, the Financial Services Agency (FSA) is further tightening regulations around Cryptocurrency Exchanges in the country.

The FSA had suspended registrations after the Coincheck hack attack that took place in January of this year, where $532 million has been stolen from the cryptocurrency exchange. Now, the regulator has put new checks in place to ensure such breaches of security do not take place.

Fortifying the Registration Screening Process

Internal sources that know about the matter told local news media that the FSA was fortifying the registration screening process for cryptocurrency exchanges. The registration process was being conducted as per the revised Payment Services Act, which has been put in place in April of 2017 as a means of protecting cryptocurrency users.

This registration screening process is now being made even more stringent to ensure that crypto exchanges are conducting proper risk management procedures. In this new process, the number of questions during the application screening process has now gone up to 400, which is a four-fold increase from the previous questionnaire.

Additionally, applicants are now obligated to submit the minutes of their board meetings.  While earlier the FSA only asked questions about a company’s current financial condition as well as system safety, now, by perusing the minutes of board meetings, the agency will also be assessing whether executives in the organization are appropriately involved in the decision making process.

With the new system, the FSA will not only check the status of the applying company. It was also assess the composition of the company’s shareholders. Along with checking the shareholders’ composition, the regulator will also examine whether companies have put in failsafe mechanisms to ensure that none of the investors have links to anti-social groups.

Ensuring High Standards

The FSA also follows up these questionnaires with on-site inspections to ensure the answers are verified. This is because the agency’s on-site inspections are critical to maintaining and increasing industry standards, since such inspections have revealed frequently weak internal control systems in cryptocurrency exchanges.

There have been many instances where companies have not even followed basic corporate protocol such as maintaining minutes of board meetings.

So far, more than 100 companies have display interest in opening cryptocurrency exchanges. Now, with the new rules in place, the Financial Services Agency is hoping that only the serious players will apply.

According to the FSA’s Commissioner Toshihide Endo, the agency’s goal is that the cryptocurrency industry should be allowed to develop and grow under a regulatory umbrella so that it may flourish.

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