Japan Sets New Cryptocurrency Exchange Laws
In light of cryptocurrency security breaches like Coincheck being hacked for $531 Million worth of NEM, Japan has been working on regulations that will safeguard such events from happening in the future. The Japanese Financial Services Industry created five criteria for exchanges to meet. Operations will be visited in person by officials from the FSA, and will need to submit paperwork detailing how they have ensured new security measures to meet the standards.
Exchanges must not store cryptocurrencies in any form connected to the internet, i.e. cold wallets, and must incorporate extra passkeys for transfer processes. They “will not store currency in internet-connected computers and will have to set multiple passwords for currency transfers.”
Know-Your-Customer methods will need to be implemented, but only for large transfers. Exchanges “will need to work harder to prevent money laundering, through such means as verifying customer identification for large transfers.”
Customer asset management
Customer assets must be “carefully managed separately from exchange assets.” There will be security checks in place against exchange operations themselves. They must “have rules in place to keep their officers from using client money or virtual currencies.”
Restrictions on privacy coins
Coins like Monero are unlikely to make it through the new process in Japan. “Those granting a high level of anonymity and easily used for money laundering will as a general rule be banned.”
Insider Trading Prevention
Exchanges “will need to separate shareholders from management. System development roles will also be separated from asset management roles to keep employees from manipulating the system for their own gain.”
The new framework must be implemented in all exchanges, whether they are currently in operation or in planning stages. The main purpose is to give the FSA the capacity to “perform a detailed assessment and identify potential risks in advance.” Currently, 16 government-approved exchanges exist in Japan are. The FSA has not begun accepting new applications to pass the standards. They claim over 100 organizations are interest in doing so.