Nine separate cryptocurrency exchanges in Japan have officially suspended operations. Two are currently facing regulatory sanctions from the government and a further five are withdrawing their applications.
Back in March, Japan's 16 government-registered crypto exchanges formed a self-regulatory body in an attempt to establish trust with their consumer-bases. The self-regulatory body also serves to stamp out illicit activities such as money laundering or data hacking.
The regulatory body was a response to the theft of $530 million worth of NEM from Tokyo-based exchange Coincheck. The company has since been hit with government sanctions, with trading others suspended and ordered to improve security.
Coincheck’s ordeal showed the Japanese government the need for exchanges to improve existing security measures. It has since provoked the government's Financial Services Authority (FSA) to inspect 32 exchanges.
Crypto Exchanges Told To Improve
The Japanese government recognizes 16 cryptocurrency exchanges. Another 16 quasi-legitimate exchanges and over 100 other companies are seeking some level of validation from the government.
Failure to implement adequate 'Know-Your-Customer' (KYC) procedures in line with the country’s legislation is a key reason for the FSA's decisions against these exchanges.
Nine exchanges have been suspended, with additional exchanges being handed business improvement orders, in an attempt to enhance their security measures.
CoinCheck - Business Improvement Order
Since the NEM token theft, CoinCheck has been allowed to conduct limited operations. The company has since started reimbursing users with up to $0.83 per stolen NEM token. Japan’s FSA hit Coincheck with a business improvement order back in March.
Blue Dream Japan - Business Improvement Order, Suspension
After an on-site inspection was carried out by the FSA, Blue Dream was handed both a business improvement order and a suspension. The FSA ruled that Blue Dream failed to comply with existing user registration requirements.
Blue Dream is set to undergo its suspension order until June 10. After the FSA's orders were handed down to Blue Dream, the latter made this statement:
“We will solemnly accept the business suspension order and business improvement order... We hope to continue [our] virtual currency exchange business in the future after conducting thorough compliance with laws and regulations and improving the management system so that we can provide services that users can use with confidence."
FSHO & Eternal Link – Suspensions
Both FSHO and Eternal Link have been handed down administrative penalty orders due to their lack of effective KYC procedures. Under these penalties, both exchanges will cease business activities until June 5 and 7 respectively.
The suspensions were also applied over a lack of an anti-money laundering protocol.
Campfire - Voluntary Suspension, Application Withdrawal
In the wake of ongoing improvement orders and suspensions handed down to crypto exchanges, the crowdfunding platform Campfire has voluntarily suspended its exchange.
In a statement, Campfire stated that it would enter suspension, and withdraw its application to operate as a crypto exchange, citing the need to abide by existing KYC and anti-laundering regulations.
"We have been preparing to register the virtual currency exchange…However, in order to build a perfect service system in terms of customer asset protection and convenience, we decided that [a] further review of the plan is necessary."
LastRoots - Business Improvement Order
Much like Eternal Link and FSHO, LastRoots was found to lack necessary regulations to prevent illegal activities, according to a statement released by the FSA.
"It was recognized that countermeasures against money laundering and terrorist financing, separating the management of user property and effective risk management of system risks have not been established."
On April 6, business improvement orders were handed to LastRoots to redress these issues within its organization.
GMO Coin - Business Improvement Order
The GMO Coin exchange was handed down a business improvement order after the FSA inspected its operations. The regulator cited key differences in security and identification measures compared to those required by the government.
GMO has since established a Group Information Security Audit Office, allowing them to effectively fall in line with existing regulations. The exchange has also issued a statement, reiterating their drive to improve security:
"We will protect important customer information from increasingly sophisticated cyber-attacks by our highly secured countermeasures and pursue to improve group information security literacy and foster security personnel."
A total of seven exchanges including Campfire have withdrawn their applications to become fully regulated. These include Tokyo Gateway, Mr. Exchange, Raimu, Bitexpress and Bit Station. The stance taken by the Japanese government is considered by some a positive step forward.