Five Cryptocurrency Exchanges to Shut Down Over Regulatory Compliance

Five Cryptocurrency Exchanges to Shut Down Over Regulatory Compliance

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 Nikkei reports on Thursday that two more Japanese cryptocurrency market operators - Tokyo GateWay and Mr. Exchange - are withdrawing their applications to register with Japan's Financial Services Agency (FSA) as exchange operators. The FSA on March 8 ordered both to improve their data security and other safeguards after they were found to be lacking. 

The companies will leave the exchange business after returning clients' cash and cryptocurrency holdings. 

The development comes amid an ongoing crackdown on unregistered exchanges that are found wanting with their security measures following the theft of 500 million NEM tokens from Tokyo-based Coincheck in late January, valued at approximately $530 million at the time. 

Nikkei reported that more exchanges (Raimu, bitExpress and the currently suspended Bit Station) are expected to withdraw their applications for licensure because of inability to meet the FSA’s requirements. The FSA has reportedly given fallen exchanges an opportunity to withdraw their applications before they are “[ordered] to do so.” 

Bit Station was reportedly targeted by the FSA after it was revealed that a senior official at the exchange had allegedly routed deposits of digital currency for his own use; FSHO’s operations were halted after the FSA determined that the exchange had failed to properly train employees and install an appropriate trade-monitoring system. 

The five exchange operators that have decided to pull out of the business are all part of this latter group, as is Tokyo-based Coincheck, from which hackers stole around 58 billion yen ($532 million at the time) in the virtual currency NEM in January. 

New Japanese legislation that came into effect in April 2017 – notably recognizing bitcoin as a legal method of payment – ruled that cryptocurrency exchange operators must register with the FSA while adhering to guidelines and standards to earn a license for domestic exchange operations. Exceptions, on a provisional basis, were made for operational exchanges predating the new legislation. Coincheck is a notable example of an unregistered exchange that continues to operate, despite the comprehensive hack.

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