By Josiah Wilmoth
Japan’s chief financial regulator plans to step up its enforcement of domestic cryptocurrency exchanges in response to a recent incident at Tokyo-based trading platform Coincheck, which resulted in a historic cryptocurrency heist.
Japan’s Financial Services Agency Vows to Increase Oversight of Cryptocurrency Exchanges
In April 2017, landmark legislation took effect in Japan that legalized cryptocurrency. One of the bill’s provisions was that exchanges must obtain licensure from the FSA. However, the bill included a grace period that allowed the country’s 32 existing exchanges to continue operating while they underwent the arduous registration process. To date, only half of those exchanges have been granted a license.
Notably, Coincheck nsure was still pending in late January, when hackers infiltrated one of the exchanges hot wallets and absconded with $530 million worth of XEM tokens, the native currency of the NEM network, making the theft the worst in the industry’s history.
Regional media outlet Nikkei reports that Japan’s Financial Services Agency (FSA) believes that lack of oversight was one reason that Coincheck felt comfortable operating with lax security measures, including keeping most of its fund in “hot wallets,” which are connected to the internet and thus more vulnerable to data breaches than industry-standard “cold storage” wallets.
To make matters worse for the FSA, South Korean intelligence officials have noticed parallels between the methods employed by the hackers and tactics used in cyberattacks linked to the North Korean government, making it possible that this was a state-sponsored act carried out to help fund the regime’s nuclear program.
Prioritizing Expansion Over Security
The report said that regulators are concerned that, due to the burgeoning nature of the cryptocurrency ecosystem and Japan’s emergence as a major hub in the global marketplace, trading platforms have prioritized expansion while security and consumer protection had taken a back seat.
Moving forward, the FSA intends to begin conducting surprise inspections of the country’s cryptocurrency trading platforms, a practice that it says should prompt them to tighten their consumer protection measures.
These inspections will begin as early as this week, and they will likely result in regulators issuing improvement orders, as it did to Coincheck following last month’s heist.
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Featured Image from Reuters/Toru Hanai