Japan is the first country that believed in making cryptocurrency a regular part of its transactions and legalized Bitcoin (BTC) as a valid mode of payment. Naturally, it is also one of the biggest platforms for crypto trading and most of the exchanges are eager to serve Japanese traders. But the hacking attack of January 2018 in which the hackers stole more than $500 million of NEW tokens made the government think about taking steps to protect its cryptocurrency investors.
FSA To Curb Possibilities of Hacking Scandals
The Japanese government wants to ensure that the Coincheck hack is never repeated. The Financial Services Agency (FSA) said in April that they want to introduce a new perspective in reviews of registrations. According to FSA,” The registration process would go beyond mere documentation and include preliminary visits that make detailed investigations into how operations are managed.”
The Japanese financial regulator has come out with five new criteria that will be mandatory for all the cryptocurrency exchanges operating in Japan. The rules will be applicable to all the existing exchanges as well as the new cryptocurrency platforms applying for registration for the first time. Authorities will carry out on-site inspections of all the exchanges before giving an approval. With the introduction of new rules, FSA aims to protect assets of the customers and promote compliance and make sure that another digital currency hack like the Coincheck scandal is not repeated.
The Five Mandatory Criteria For Cryptocurrency Exchanges
The first among the five criteria is regarding concerns system management. Under this criteria, FSA will make sure that exchanges do not store currency in internet-connected computers and set up multiple passwords for currency transfers.
The second criteria focus on money laundering preventative measures according to which exchanges will have to work harder so that it is prevented by carrying out various steps such as customer identity verification for large transfers. The third rule concerns management of customer assets in which the exchange operators will have to check the customer account balances multiple times a day to ensure that there are no signs of diversions and that the officers are not using client money or virtual currencies.
Under the fourth rule, the exchanges allowing a high level of anonymity and easy money laundering tactics will be banned. As per the fifth rule exchanges will need to carry out an internal procedure and separate shareholders from management so that the employees do not manipulate the system for their personal gains.
Essentially, the Japanese government is attacking the anonymity of cryptocurrencies, one of the main reason why people use them.