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Japan’s Financial Regulator Tightens Their Crypto Exchange Risk Screening Process

Financial Service Agency (FSA), the financial regulator of Japan has introduced new screening requirements for cryptocurrency exchanges which are looking for approval to operate in Japan. The agency has tightened the screening process for crypto exchanges to see whether they are properly conducting risk management or not. Earlier the Financial Service Agency was just focusing on the financial health and system safety measures. New additional screening criteria will help in the decision-making process.

FSA has revised the Payment Service Act which was enforced in April last year. In the upgraded registration process, the financial watchdog has added several new features. Now the crypto exchanges have to answer more questions at the time of screening.  The agency has increased the number of questions asked during the screening process to about 400 times. To check for links to antisocial groups, FSA will now access the board meetings records of the crypto exchanges and reviews of the shareholders of the company.

From July, FSA was planning to change the legal basis for cryptocurrency exchange regulations. Now there is a potential shift in the screening process from the payment Service Act to Financial Instruments and Exchange Act (FIEA).

$532 million heck of Coincheck in January this year became a major concern for the FSA. After the heck FSA start the inspection of 23 cryptocurrency exchanges. In the inspection, the agency found that there is a sloppy internal control and lack of board meeting minutes. FSA issued orders of business improvement to six fully licensed crypto exchanges. 13 quasi-operators whose applications have to be reviewed by the agency have withdrawn their application. Now only three quasi-operators (Coincheck, Lastroots, and Everybody’s Bitcoin) are left in the country.

Now FSA is closely scrutinizing the effectiveness of the cryptocurrency exchanges’ business models. FSA wants to grow the crypto industry under appropriate regulatory environment. FSA has recently disclosed that around 160 new cryptocurrency exchange operators are planning to enter in the Japanese market. The updated screening process will make their entry little difficult in the Japanese market.