Japan Goes After Crypto Exchanges That Have Lackluster Internal Controls

The Financial Services Agency in Japan has targeted seven cryptocurrency exchanges after the theft of $530 million in digital tokens earlier this year, ordering two of the exchanges to halt their businesses for a period of time.

According to a report in Reuters citing the Financial Services Agency in Japan, the government agency contends the seven exchanges don’t have the proper control systems in place and ordered them to bolster their risk management to prevent any criminal use of digital tokens. That move drove down the value of bitcoin briefly, noted Reuters. Bit Station and FSHO are the two exchanges that were ordered to stop operations for a month. Coincheck was given its second notice since late January, when it was targeted for the theft. GM Coin also received a notice from the Financial Services Agency, reported Reuters.  Coincheck has until March 22 to provide the government agency with a report on how it plans to improve its systems to deal with risks including money laundering and terrorist financing, noted the report.

The move marks the most aggressive action on the part of the Financial Services Agency against cryptocurrency exchanges. Coincheck CEO Koichiro Wada told reporters during a briefing after the order came down that the company wasn’t “keeping with the expansion of our business.” He said Coincheck is looking at his options which may include him leaving in response to the hack. The exchange, starting next week, will pay back around $434 million to investors who lost digital money as a result. He also said Coincheck will remove curbs on trading of some cryptocurrencies which were put in place after the hack.

On January 26, Coincheck revealed that 500 million NEM tokens were sent “illicitly” out of the exchange. As a result, the exchange stopped withdrawals, non-bitcoin trades and deposits into NEM coins.  “We realize that this illicit transfer of funds from our platform and the resulting suspension in services has caused immense distress to our customers, other exchanges, and people throughout the cryptocurrency industry, and we would like to offer our deepest and humblest apologies to all of those involved,” the company wrote on its website at the time. “In moving towards reopening our services, we are putting all of our efforts towards discovering the cause of the illicit transfer and overhauling and strengthening our security measures while simultaneously continuing in our efforts to register with the Financial Services Agency as a Virtual Currency Exchange Service Provider.”