Officials from Japan’s Financial Services Agency (FSA) have announced that it will begin “full surveillance” of cryptocurrency exchanges operating in the country. According to the Japan Times, the government agency will ensure that exchanges for Bitcoin and other cryptocurrencies have proper internal systems to protect customer assets. A 30-member surveillance team built from agency and local finance personnel was recruited last month to check on customer asset management and cyber crime protection. The FSA did not rule out on-site inspections of business premises.
Expected to be operational by October, the move will mark the final step of a national regulation process that began three years ago in the wake of the Mt. Gox scandal. Then the world’s largest exchange service for Bitcoin, Mt. Gox claimed that it lost around $480 million worth of Bitcoin to an alleged hack and/or lax security practices.
The resulting closure and arrest of CEO Mark Karpeles sent shockwaves throughout Japan’s financial sector, prompting the finance vice minister Jiro AIchi to call for international regulation of cryptocurrencies. Fearful of another repeat of Mt. Gox, legal and financial experts agreed that a national-level intervention aimed at protecting users and preventing money laundering would be the first realistic step.
The first tangible result happened in mid-2016 when lawmakers finally passed legislation that would put crypto exchanges under the watchful eye of the FSA. They gave themselves a year to finalize the draft, and by November, Mitsui Sumitomo Insurance introduced insurance that would cover losses and damages at Bitcoin exchanges. As the final legislature took shape in January, it became clear exchanges would need to register with the FSA using a working capital of at least 10 million yen ($85,000) and comply with regular audits.
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