FSA orders virtual coin exchanges to fight laundering

Japan's finance regulator orders cryptocurrency exchanges to improve anti-money laundering measures

Kyodo, JIJI, Reuters

The Financial Services Agency on Friday ordered bitFlyer, Inc. and five other cryptocurrency exchange operators to improve internal controls to combat money laundering.

The move suggests that even operators registered under the revised payment services law, enacted in April last year, have not yet established adequate internal control systems.

In its third action against multiple cryptocurrency exchange operators, the agency aims to make the industry healthier. Other targets of the agency’s order are Quione, Bitbank Inc., BITpoint Japan Co., BtcBox Co. and Tech Bureau Corp.

The government has strengthened oversight of the industry after ¥58 billion ($530 million) worth of the NEM coins was stolen in January from customers’ accounts at Coincheck Inc.

Through inspections, the agency has found that steps against money laundering and methods used to verify customer identities are inadequate.

Following the FSA order, bitFlyer said it will temporarily stop accepting new customers.

Earlier this month the agency refused to authorize Yokohama-based cryptocurrency exchange FSHO following its failure to strengthen anti-money laundering measures.

Digital currency transactions in the country in fiscal 2017 made a twentyfold jump from the previous year to some ¥69 trillion. At the same time, some exchange operators failed to take sufficient measures against money laundering, such as verifying customers’ identity, or suffered glitches caused by excessive loads on their systems.

The FSA in February carried out on-the-spot inspections of all operators under screening for registration and took administrative action with many of them following the Coincheck theft.

In addition, the FSA has scrutinized about half of the registered operators since February. Business improvement orders have been issued to Tech Bureau, based in Osaka, and Tokyo-based GMO Coin Inc.

Due to chair the Group of 20 in 2019, Japan hopes to take a global lead in combating money laundering at cryptocurrency exchanges and is pushing for adoption of new binding rules by next year.