The Japanese financial supervision authority, Financial Services Agency (FSA) has published the results of its audits of cryptocurrency exchange operators – Japanese stock exchanges and exchange offices.
On the basis of the results obtained, the supervisory body decided to more rigorously supervise the new proposals from exchanges regarding the issue of an official operating license. The newly registered stock exchanges and exchange offices will have to be subjected to thorough controls at an early stage of operation. The entity also plans a thorough analysis of the effectiveness of their business models. According to the body, currently hundreds of companies are waiting for such activities.
Too fast growth
The FSA probe revealed that the stock exchange operators’ maintenance of their internal control systems could not keep up with the rapid increase in the volume of transactions and market capitalization. This is obviously the effect of the last bubble in the cryptocurrency markets in autumn 2017.
According to the research, the total value of Japanese digital assets on stock exchanges increased to 792.8 billion yen (7.1 billion USD), which is more than sixfold in one year. Meanwhile, most employees of companies in this market have less than 20 employees, which means that on average one employee managed 3.3 billion yen (29.7 million) digital assets.
The comprehensive document identified a wide range of problems in business models of exchanges related to risk management, internal audits and corporate governance. The agency also highlighted concerns about insufficient anti-money laundering (AML) funds in some exchanges.
Local information platform Nikkei reported that most likely the new registration of stock market operators – which practically stopped after the January hacking on the Coincheck platform – will resume.
The FSA also stated that an “essential” continuous review of registration procedures would be necessary and that it would continue to provide “a priority for investor protection”.
In May, the FSA developed regulatory provisions for registered exchanges, including restrictions on anthologically oriented altcoin trading. In July, it was announced that the legal framework regulating the legal issues of cryptoclut exchange was being considered, and the agency itself was recently restructured to improve the handling of areas related to fintech, including digital currencies.
The self-regulatory institution also joined the case – the Japanese Virtual Currency Exchange Association (JVCEA). The entity created at the beginning of March wants to lead to the development and coordination of policy in cooperation with the FSA.