Japan’s FSA suspends two cryptocurrency exchanges over security lapses

Japan’s Financial Services Agency [FSA] punished six and suspended two cryptocurrency exchanges – with effect for a month, starting today.

The measures were taken by the agency to shore-up consumer protection after the theft of $530 million digital currency as reported at Tokyo-based exchange Coincheck.

The two suspended exchange platforms are – FSHO and BIT STATION.

The other four exchanges who have been under the scanner of the agency are – GMO Coin, Mister Exchange, Tech Bureau and Coincheck.

The financial regulator found that the exchange systems lacked adequate anti-laundering measures and internal control systems.

They also made an announcement that all the seven exchanges are to work on their security measures and have to submit a written document with the improvement plan by March 22nd.

In January, Coindesk had reported the about the heist, which amounted to about $500 million NEM digital coins. This triggered the FSA to probe and also landed other exchange platforms into the net.

A senior official from the FSA confirmed that Coincheck had the funding to reimburse its customers the NEM coins stolen from its exchange, in a press conference held on Thursday. After this, Coincheck stated that for each stolen coin, a $0.81/coin rate will be compensated, which comes up to around $420 million.

Officials from FSA also stated that a senior employee at Bit Station used the customers’ Bitcoin for personal use.

A GMO spokesperson commented on the issue:

“We will make efforts with all of our power to restore trust as early as possible.”

A regulator from FSHO said:

“There were repeated cases of high-value cryptocurrency trades with no judgment made about the need for notification of a suspicious transaction.”

The FSA also stated that it has established a cryptocurrency industry study group to check the institutional issues relating to the same. The group will comprise of academic institutions, cryptocurrency exchanges as well as government agencies as observers. The FSA will itself serve as the secretariat.

An FSA executive said:

“We pursue both market fostering and regulation enforcement.We aim for sound market development.”

The hack had affected almost 2,60,000 users. The funds were stored in a ‘hot wallet’ which is an online wallet. Cryptocurrency good practice dictates funds to be stored in a ‘cold storage’ which basically is a hardware wallet.

The reason for the theft was attributed to poor security measures and not a blockchain flaw. Once Coincheck realized about the theft, they immediately stopped all exchanges and deposits. They reported the matter to the concerned agency and employed damage control measures.

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