Japan raps Coincheck, orders broader checks after $530 mln cryptocurrency theft (updated)
29/01/2018 06:46
* Regulators order report on Coincheck's countermeasures by
Feb 13
* FSA to inspect all other exchanges - official
* Non-registered Japan firms allowed to operate crypto
exchanges
* NEM Foundation says it knows where lost coins are
(Adds comments from regulators, analyst)
By Taiga Uranaka and Thomas Wilson
TOKYO, Jan 29 (Reuters) - Japan's financial regulator said
on Monday it would inspect all cryptocurrency exchanges and
ordered Coincheck to get its act together after hackers stole
$530 million worth of digital money from its exchange in one of
the biggest cyber heists on record.
The theft highlights the vulnerabilities in trading an asset
that global policymakers are struggling to regulate and the
broader risks for Japan as it aims to leverage the fintech
industry to stimulate economic growth.
The Financial Services Agency (FSA) on Monday ordered
improvements to operations at Tokyo-based Coincheck, which on
Friday suspended trading in all cryptocurrencies except bitcoin
after hackers stole 58 billion yen ($534 million) of NEM coins,
among the most popular digital currencies in the world.
Coincheck said on Sunday it would return about 90 percent
with internal funds, though it has yet to figure out how or
when. urn:newsml:reuters.com:*:nL4N1PN012
The NEM coins were stored in a "hot wallet" instead of the
more secure "cold wallet", outside the internet, Coincheck said.
It also does not use an extra layer of security known as a
multi-signature system.
The FSA said it ordered Coincheck to submit an incident
report and measures for preventing a recurrence by Feb. 13.
If necessary, it will conduct on-site inspections of other
exchanges, an official told a briefing.
The regulator said it has yet to confirm whether Coincheck
had sufficient funds for the reimbursement.
Japan started to require cryptocurrency exchange operators
to register with the government only in April 2017, allowing
pre-existing operators such as Coincheck to continue offering
services ahead of formal registration.
The FSA has registered 16 cryptocurrency exchanges so far,
and another 16 or so are still awaiting clearance. Coincheck's
application was made in September.
"It's been long said that cryptocurrencies are a solid
system but cryptocurrency exchanges are not," said Makoto
Sakuma, research fellow at NLI Research Institute.
"This incident showed that the problem has not been solved
at all. If Coincheck screws up its crisis management, that could
deal a blow to the current cryptocurrency fever."
NEM fell to $0.78 from $1.01 on Friday but recovered to
$0.97 on Monday, according to CoinMarketCap. Crypto-currency
related shares mostly rose in Tokyo, with GMO Internet 9449.T ,
which offers cryptocurrency exchange service, gaining 5.7 pct.
CRYPTOCURRENCY RISKS
Singapore-based NEM Foundation said it had a tracing system
on the NEM blockchain and that it had "a full account" of all
of Coincheck's lost NEM coins. It added that the hacker had not
moved any of the funds to any exchange or personal accounts but
that it had no way to return the stolen funds to its owners.
In 2014, Tokyo-based Mt. Gox, which once handled 80 percent
of the world's bitcoin trades, filed for bankruptcy after losing
around half a billion dollars worth of bitcoins. More recently,
South Korean cryptocurrency exchange Youbit last month shut down
and filed for bankruptcy after being hacked twice last year.
World leaders meeting in Davos last week issued fresh
warnings about the dangers of cryptocurrencies, with U.S.
Treasury Secretary Steven Mnuchin relating Washington's concern
about the money being used for illicit activity.
Many countries have clamped down on exchanges.
South Korea will ban cryptocurrency traders from using
anonymous bank accounts to crack down on the criminal use of
virtual coins. China has ordered some exchanges to close, with
the aim of containing financial risks. urn:newsml:reuters.com:*:nL4N1LW1QH urn:newsml:reuters.com:*:nL4N1PI1F7
But Japan has taken a different tack, becoming last year the
first country to introduce national-level regulation of
cryptocurrency exchanges.
The move, intended to protect consumers and stymie money
laundering, was praised by many traders and operators as
progressive.
($1 = 108.6600 yen)
(Additional reporting by Makiko Yamazaki, Takahiko Wada,
Hideyuki Sano, Chang-Ran Kim in TOKYO, Vidya Ranganathan in
SINGAPORE; Writing by Chang-Ran Kim)
((ran.kim@thomsonreuters.com; +81-3-6441-1804; Reuters
Messaging: ran.kim.reuters.com@reuters.net))
Keywords: JAPAN CRYPTOCURRENCY/