But before going over the announcement, we should take a quick look at recent history.
Coincheck, which is one of the largest crypto exchanges in Asia, was hacked on 26 January 2018, which resulted in around 523 million NEM coins (worth about $535 million at the time) being stolen.
A couple of days later, on 29 January 2018, Japan’s financial watchdog, the Financial Services Agency (FSA) issued a business improvement order to Coincheck, which had been operating as an unlicensed exchange, telling it to investigate the cause of the hack, clarify responsibility, come up with prevention and risk management measures, and explain what it was going to do about its customers’ losses.
Then, on 8 March 2018, the FSA issued another business improvement order to Coincheck in which it criticized the firm for not having proper systems to deal with anti money laundering (AML) regulations.
Coincheck decided to announce the news about the delisting of REP, DASH, XMR, and ZEC at 9:14pm (local time) on Thursday, 17 May 2018, via a tweet and a press release. In this press release (titled “Notice of partial abolishment of virtual currency handling”), Coincheck explained that as a result of the review of its business practices — which it had been forced to do by the FSA — it had decided that it was inappropriate for it “to deal with currencies that are of little concern.” This notice said that the delisting date was 18 June 2018, and named Augur (REP), Dash (DASH), Monero (XMR), and Zcash (ZEC) as the target cryptocurrencies.
Here is the main information from the translated version of this notice:
“In connection with the unauthorized remittance of virtual currency NEM due to unauthorized access recently, we received a business improvement order from the Financial Services Agency under Article 63-16 of the Financial Settlement Law on March 8, 2018. We take this measure as solemnly and sincerely, reflect on our deep reflections, drastically review our internal control system and management control system, and rethink our management strategy that thoroughly protects customers.
As a part of this review, based on the fact that it is necessary to further develop and strengthen the management system of AML / CFT in the future, we deem that it is not appropriate for us to deal with currencies that are of little concern, We revalidated various risks based on the characteristics of As a result, the following currency handling will be abolished.
Abolition date: June 18, 2018
Detailed description: Partial target currency on Coincheck
Currency: XMR, REP, DASH, ZEC
1: Withdrawal due to the abolition of transactions, deposits / withdrawals, deposits / withholdings, loan to our company , The target currency held on the discontinued date will be sold at the market price and converted into Japanese yen.
2: The Japanese yen acquired by sale is reflected in the balance of the Coincheck account.
3: When we receive a lot of remittance application by this guide, time may be received for several days before remittance completion, including confirmation by visual inspection etc.
4: In case of withdrawal it is necessary to complete confirmation at the time of dealing. Moreover, please be aware that there may be cases when you make a separate transaction confirmation.”
As you can see from above, on the delisting date, 18 June 2018, any holdings in these four cryptocurrencies that have not been transferred already will be sold at market price with the proceeds converted to Japanese Yen and credited to customer accounts.
Coincheck’s decision to delist privacy-focused coins Dash, Monero, and Zcash is understandable given that we heard via Forbes on 30 April 2018 that the FSA was doing everything it could to discourage crypto exchanges from dealing with “certain alternative virtual currencies that have become attractive to the underworld because they are difficult to track.”
As for the decision to drop Augur (REP), Coincheck probably felt that it was safer to do this since the Augur platform deals with prediction markets, i.e. betting that certain events will or will not take place, which is essentially gambling, and since unapproved forms of gambling are illegal in Japan, Coincheck must have realized that it would be safer to delist Augur now than to be criticized for not doing so later.
Also, it is worth noting that Coincheck, which got acquired by Japanese online brokerage Monex in April, is currently waiting, according to Monex CEO Oki Matsumoto, to receive a license from the FSA in June 2018. So, it makes sense that Coincheck would want to go the extra mile (i.e. delist REP) and stay in the FSA’s good graces in order to increase its chances of success in getting a license.
Finally, it is interesting that despite all the regulatory pressure that Coincheck has faced during the past few months, Monex’s CEO says, according to Bloomberg, that Monex is planing to bring the Coincheck platform to America. This may seem a bit strange since the U.S. seems less crypto friendly than Japan (a country in which the government recognized cryptocurrencies as legal forms of payment in 2017). Here is how the Monex CEO explained the decision to expand Coincheck’s operations to the United States:
“Japan may seem like it’s one step ahead in crypto, but in terms of deciding what’s a security or a token and attracting institutional investors, the U.S. and Europe are moving ahead.”