5 Criteria for Crypto Exchanges in Japan

One of the primary reasons why Kraken is now stepping out of Japan is mainly because of the stricter rules implemented by Japanese regulators that aim to protect consumers. Japan financial regulators have imposed five new criteria needed in order for these businesses to operate in the country. This is going to be applied both to existing exchange operators as well as for new ones that are trying to enter the market.

Preventing Another Coincheck Scenario

It is no secret that Coincheck was among the worst crypto scandals that happened in Japan. According to the agency, it aims to protect customer assets as well as “forestall another digital currency heist like the Coincheck scandal”.

Coincheck was one of the largest crypto exchanges in Japan. It was hacked last January wherein it lost hundreds of millions of dollars-worth of NEM. It lost approximately around $531 million. Since then, it was then acquired by the leading online brokerage company, Monex Group.

FSA officials also mentioned that for the crypto exchanges to continue doing business, it is a necessity that they meet the documentation process as well as visits coming from officials. This will ensure that the crypto exchange operates according to the expectations of the Japanese FSA.

“Exchange operators registering with the government will now need to satisfy five broad criteria”.

Five Broad Criteria

So what exactly are these five criteria that cryptocurrency exchanges need to meet in order to pursue the Japanese market? The first is that the exchanges “will not store currency in internet-connected computers and will have to set multiple passwords for currency transfers”. Next, the cryptocurrency exchanges “will need to work harder to prevent money laundering, through such means as verifying customer identification for large transfers”.

The third criteria that have to be met states that the FSA wants the cryptocurrency exchange to guarantee to their clients that they “carefully managed separately from exchange assets”. And because of this, the exchange operators should check customer balances at different times of the day. This will prevent the crypto exchange from their operators using the funds of the clients.

The type of cryptocurrencies listed on the exchanges will also be limited. Those digital currencies that grant a high level of anonymity will be banned mainly because of money laundering concerns. What this means is that the FSA has been pressuring the crypto exchanges to get rid of Monero as part of their list of digital currencies.

And lastly, the shareholders will be separated from the management. The system development roles will also be separated mainly from the asset management roles in order to avoid employees doing manipulation of the system towards their own gain.

Is this really a good move? It seems that there Kraken has already decided to stay away from Japan because of the cost of these changes. However, hacks have commonly happened over the last years that this looks like a necessity for the growing market. Despite Japan’s open-mindedness when it comes to the digital currencies, this move only means that they are even more serious about protecting consumers and addressing the potential use of cryptos for money laundering.