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Amandeep Sonewane

19 June 2018

Regulation

Japanese exchanges get instructed to improve AML, due to inconsistencies

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"On June 19th, the Japanese mainstream publication Nikkei reported a story that the Financial Services Agency (FSA) requested business improvement orders (BIO) from 5 different exchanges, as reported by my source CoinPost. The reason behind the BIO's was because the FSA does not believe that the exchanges internal control systems are strong enough to prevent money laundering.

Which exchanges were affected?

The order was issued to the following 5 cryptocurrency exchanges:

  • BitFlyer
  • QUOINE
  • Bit bank
  • Bit point Japan
  • BTC box

Connection to hacking attempts

The exchanges are instructed to perform due diligence and report back with a plan to the FSA. It is easy to understand this strict attitude from the FSA following recent troubles in the Asian market, with the CoinRail hack a few weeks ago, and the CoinCheck exchange hack 4 months ago.

Hacks also disrupt the market, making it more difficult to track money laundering efforts, as the focus is suddenly on a different part of the ecosystem. This shift of attention is opening up room for manipulation in the rest of the market.

CoinPost also reports: "In response to the CoinCheck incident, the Financial Services Agency was conducting an examination on system risk on February 1st for the exchange. On February 13 it was conducting on-site inspections for exchanges, one after another."

The reasons behind the FSA's decision

According to the Japanese Nikkei newspaper the FSA judged that these exchanges were not fit to properly deal with money laundering, and instructed them to fix these issues as soon as possible.

The identified issues were connected to the low number of employees these cryptocurrency exchanges had on staff. Also, confirmations for suspicious transactions were detected in the registers of the exchanges.

Featured image by Pixabay

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