Japan punishes seven cryptocurrency exchanges over regulatory lapses (updated)
08/03/2018 03:22
* FSA punishes seven exchanges, orders two to halt business
* Exchanges failed to protect users and prevent
money-laundering
* Coincheck to hold press conference at 0700 GMT
* Okaying ops by unregistered exchanges problematic
-lawmaker
(Writes through, adds context, Coincheck comment, details of
GMO Coin)
By Taiga Uranaka and Thomas Wilson
TOKYO, March 8 (Reuters) - Japan on Thursday punished seven
cryptocurrency exchanges, ordering two of them to suspend
business, in an effort to shore up consumer protection after the
$530 million theft of digital money from Tokyo-based Coincheck
Inc.
The Financial Services Agency criticised the exchanges for
lacking the proper internal control systems, and ordered them to
make improvement in areas from risk management to preventing the
criminal use of digital money.
The exchanges included Coincheck, served with its second
such notice since it was targeted in the late-January heist, and
GMO Coin, run by GMO Internet Inc 9449.T . Two exchanges, Bit
Station and FSHO, were ordered to halt operations for a month
from Thursday.
The punishments represent the FSA's widest response yet to
concerns over security flaws at Japanese cryptocurrency
exchanges, which first grew from the 2014 collapse of the Mt.
Gox exchange and resurfaced with the Coincheck heist.
The regulator said Coincheck lacked proper systems for
dealing with risks such as money laundering and terrorism
financing. It gave the exchange until Mar. 22 to submit a report
on how it would improve.
Coincheck said it would hold a press conference at 1600
local time (0700 GMT).
"We will carry out a far-reaching review of our internal
control and management systems to ensure proper and reliable
business operations from the viewpoint of customer protection,"
it said in a statement.
The sanctions knocked the price of bitcoin lower while a
lawmaker from the country's ruling party criticised what she saw
as flaws in Japan's registration regime for cryptocurrency
exchanges.
Bitcoin BTC=BTSP fell as much as 5.7 percent, before
recovering to $9,812 at 0600 GMT. The virtual currency hit a
peak of $19,458 in December but has since fallen by more than
half following a series of crackdowns by regulators across the
globe on the digital coin trade.
The theft from Coincheck, one of the biggest digital money
heists ever, underscored the risks policymakers across the globe
face in regulating cryptocurrency trading, and drew attention to
Japan's pioneering system of regulating the exchanges.
UNREGISTERED EXCHANGES
Japan last year became the world's first country to regulate
cryptocurrency exchanges. Some 16 exchanges are currently
registered, while a further 16 - including Coincheck - were
allowed to continue operating while their applications are
checked.
Five of the seven exchanges punished by the FSA are
unregistered, including the two forced to suspend business, Bit
Station and FSHO. A senior employee at Bit Station used
customers' bitcoin for their own purposes, the FSA said, adding
that the exchange has now dropped its registration application.
Bit Station and FSHO did not immediately respond to emailed
requests for comment.
The head of the ruling Liberal Democratic Party's
cybersecurity taskforce said it was not ideal that exchanges
that had not registered with the governments should be allowed
to continue operations.
"It's problematic that these 16 unregistered exchanges have
been able to continue trading," Sanae Takaichi told Reuters. "In
the first place, should they have been allowed to operate while
their applications for registrations are still incomplete?"
On GMO Coin, which was registered, the FSA said that
problems with its systems had occurred frequently but the
company had not sufficiently analysed the causes. The regulator
ordered it to submit a report by Mar. 22.
Shares in GMO Internet fell as much as 5.6 percent. The
benchmark Nikkei average .N225 closed up 0.5 percent.
"We will look again at our system risk management, and take
thorough steps to improve to regain users' trust," a spokeswoman
for GMO said.
(Reporting by Taiga Uranaka and Thomas Wilson; Editing by Chris
Gallagher and Sam Holmes)
((T.Wilson@thomsonreuters.com; 81-3-6441-1598; Reuters
Messaging: t.wilson.thomsonreuters.com@reuters.net))