Japan rolls out 5 new rules for cryptocurrency exchanges

Japan rolls out 5 new rules for cryptocurrency exchanges”

Latest report reaching revealed that Japan's Financial Services Agency (FSA), which acts as the Japanese financial watchdog, has set out new regulatory stipulations for domestic cryptocurrency exchanges.

In the aftermath of Coincheck heist in January, that resulted in the loss of $500 million worth of cryptocurrencies, Japan has been implementing stricter regulations on the cryptocurrency exchanges.

Cryptocurrency exchanges need to register with the Japanese government via the FSA and will now be subject to five key requirement criteria, as reported by the Nikkei Asian Review.

There are now 16 exchanges operating with government approval in Japan, with seven others operating pending approval. So there will be new rules regarding the kind of cryptocurrencies that can be traded in Japan. They would not be allowed to store currency in internet-connected computer.

Exchanges in Japan will have stricter standards on system management and will have to employ cold storage of the cryptocurrency they hold, meaning they can not store it on internet-connected computers.

The new rules go beyond documentation and will involve on-site visits from officials as well.

The inefficiency on Minnano's part is believed to likely create several problems, mainly the potentially it has in opening doors to money laundering and financing terrorist activities.

Exchanges will also have to do more to prevent money laundering by verifying customer identification for major transfers. This includes customer verification, particularly for large transfers. It is the FSA's objective to ensure that they are "carefully managed separately from exchange assets". The platform will also have to perform regular checks to avoid any manipulation.

The regulations put measures in place to protect investors.

The publication reports that cryptocurrency exchanges which allow "high levels of anonymity" will be banned at the government level due to the increased risk of money laundering and abuse.

The last point deals with the internal structure and operation of the exchange.

Finally, the regulator will require internal standards already imposed on the creation of traditional companies, such as the separation of shareholders from management.

The new five-point framework comes into effect as soon as the FSA starts accepting new registration applications. The new system will enable the agency to conduct a detailed assessment and identify risks ahead of time. Apparently, cost to comply with the new regulations was the factor behind this decision. These rules will be applied to both existing and new exchanges.

The sudden collapse of Mt. Gox, bankruptcy filing, and subsequent accusations levied against former CEO Mark Karpeles of embezzlement and fraud gave cryptocurrency investors a wake-up call: exchanges are not necessarily safe havens.

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