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Japan Regulator Urges Improved Security for Offline Crypto Custody

Japan Regulator Urges Improved Security for Offline Crypto Custody (1)

Cryptocurrency exchanges in Japan will be required to fortify their cold wallet storages, according to a Reuters report.

Citing a source with direct knowledge of the matter told, the report states that Japan’s financial regulator, the Financial Services Agency (FSA), is uneased by the current security levels of some exchanges as it perceives risks of internal thefts that threaten cold wallets.

To this end, the undisclosed source told the outlet that a preferred measure would be to have more than one person be in charge of the cold wallet and be placed on rotational shifts.

As Japan embraces the fintech industry to further economic growth, the watchdog will, therefore, urge cryptocurrency exchanges with security lapses to ensure they adopt the best offline security practices, given that the previous year had seen as much as USD 530 million stolen from a single exchange in Tokyo alone.

In the fall of 2017, Japan began issuing a license to cryptocurrency exchanges under its new regulation, with the second exchange announced in March to debut its services in April. With its steady oversight over the industry, Japan continues to drive interest that balances innovation and investor protection.

Cryptocurrency custody remains a crucial subject in the industry; notably one of the major concerns shared by many regulators as well as investors, which in effect has created a competitive market for custody-related solution platforms. As for crypto exchanges, the situation is direr.

Case in point, Bakkt recently experienced hiccups with its launch as the US Commodity Futures Trading Commission (CFTC) stated that Bakkt’s custody protocol would need to take further steps in protecting the cryptocurrency in order to be compliant the commission’s rules.

On the subject of cold wallets, it appears security breach may not be the only threat to funds stored offline. A recent case of trapped customer funds worth over USD 190 million in a cold wallet of major Canadian cryptocurrency exchange QuadrigaCX after the death of the CEO Gerald Cotton – who was solely in charge of the cold wallet – leaves a bitter experience.

 

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Japan’s Regulator Swamped With Exchange Applications as New Year Approaches

Japan's Regulator Swamped with Exchange Applications as New Year Approaches

Japan’s financial regulator, the Financial Services Agency (FSA) is reported to have received 190 cryptocurrency license applications from exchanges as 2019 approaches.

This happened after the FSA recently granted the newly formed Japan Virtual Currency Exchange Association (JVCEA) in Japan the power to oversee self-regulation within the cryptocurrency industry.

The JVCEA had already applied to the FSA to become cryptocurrency’s one and only self-regulatory body in the country. It also attempted to stem the tide of transactions earlier this year when it recommended its own “appropriate regulations” for growth by proposing new rules that would affect the way exchanges operate, placing privacy coin listings and insider trading under the regulatory microscope.

Another tool for limiting the transaction surge suggested by JVCEA was to enforce trading caps and restrictions according to age group, i.e. the very old and the very young. The FSA regulator has already released figures showing that in April, there were 142,000 crypto traders in Japan. That monthly figure represents a small percentage of the total of 3 million Japanese traders.

Last month, FSA’s Study Group on Virtual Currency Exchange Industry concluded its tenth meeting. The group classified tokens according to three categories: virtual currencies with no issuers (like Bitcoin), virtual currencies with issuers, and virtual currencies that not only have issuers but also distribute profits.

The country’s top financial regulator Toshihide Endo has suggested that the industry needs to grow under “appropriate regulation” and as such won’t need government intervention to further enforce curbs on how exchanges operate within the country.

The FSA commented last week that:

“We think it necessary to work with the JVCEA closely so that the association can successfully perform self-regulatory functions through the establishment and application of self-regulatory rules and monitoring of their members.”

Japan is currently the global leader in the market development of cryptocurrencies, although, in terms of public adoption, many Japanese have suggested that the prices of cryptocurrencies must become far more stable in 2019 for people to use them for regular purchases throughout all sectors across the country.

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Japan Releases New Draft Crypto Regulations to Safeguard Investors

Japan Releases New Draft Crypto Regulations to Safeguard Investors

Japan’s Financial Services Agency (FSA) responsible for regulation has published a report outlining its proposals for changes to the current rules which govern cryptocurrency exchanges.

The main purpose of the updated rules is primarily aimed at addressing hacking incidents, self-regulation, deemed dealers, privacy coins, and margin trading. The framework, which also targets ICOs, was established after 11 meetings of the FSA study group.

Last month, FSA’s Study Group on Virtual Currency Exchange Industry concluded its tenth meeting. The group classified tokens according to three categories: virtual currencies with no issuers (like Bitcoin), virtual currencies with issuers, and virtual currencies that not only have issuers but also distribute profits.

According to the FSA, no major barriers prevent the new regulation becoming law and the heightened focus on cryptocurrency by the agency is thought to be a result of highly publicized hackings earlier in the year. The new laws are aimed at preventing such incidents by strengthening the management of customer property to safeguard investors.

New regulations will demand that exchanges have net assets “equal to or more than the amount equivalent to the currency and repayment funds” and also outline measures which cryptocurrency exchanges can employ to safeguard against bankruptcy.

Japan has been developing strict measures to safeguard the space since cryptocurrency began to gain huge popularity in the country. In October, industry self-regulators, the Japan Virtual Currency Exchange Association (JVCEA), were approved by the FSA to be officially recognized in its regulatory position.

Under the new regulations, Japan will refuse registration to those companies who neither “join the accredited association and conform to the self-regulation” nor establish self-regulation. There are currently “three deemed dealers” awaiting approval: Coincheck, Lastroots and Everybody’s Bitcoin.

Such companies are not permitted to advertise aggressively and expand their business while waiting for approval, nor are they able to acquire new customers during this period. Deemed dealers are also required to post their registration status on their websites to clarify their trading status for customers and potential clients.

The report also noted that ICOs “can be subject to the securities regulation” under the Financial Instruments and Exchange Act or the Fund Settlement Act.

 

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Japanese Police Investigate 700% Increase in Suspicious Crypto Activity

Japanese Police Investigate 700% Increase in Suspicious Crypto Activity

Japan’s National Police Agency (NPA) has announced a huge hike in reports of dubious cryptocurrency transactions, most which occurred between January and October of this year.

In all, 5,944 reports from cryptocurrency exchanges were recorded, possibly linked to money laundering and tax evasion. These figures represent an eight-fold increase from the 699 cases reported in 2017.

Japan has the world’s most progressive regulatory climate for cryptocurrencies with a buoyant and energetic market. Its regulator has tightened regulation om trading and exchanges over time in order to provide a secure business environment and now requires all cryptocurrency exchanges to be screened and registered by the Financial Services Agency (FSA). In 2017, this vigilance was stepped up by the FSA also requiring a form of mandatory reporting expecting exchanges to report any suspect trading activity to the regulator.

These laws appear to have done little to prevent an escalation in cases of illegal activity, although they are at least now being brought into the public light. An NPA official commented, “It’s already been some time since the reporting system began, and it has been embraced by the industry through guidance from the Financial Services Agency.”

The cost of this crime, however, is alarming, with the JPY 660 million stolen from crypto exchanges and individual wallets swelling to a huge JPY 60 billion in only the first half of 2018.

Just this week, the National Safety Commission released its latest report on the state of the industry with regards to the misuse of cryptocurrency funds, a factor that many nations’ leaders cite as being the main deterrent towards civic adoption by central governments and banking institutions.

The main areas of misuse thrown up by the report include factors such as reuse of the same face photo by several users with different names and birth dates, multiple trading accounts initiated from a single IP address, logins from overseas on accounts with Japan addresses, as well as registration of out-of-use mobile phone numbers.

But FSA registrations continue, with 16 recent exchanges passing the screening process and another three awaiting the green light to operate, highlighting that the FSA feels that it has this situation under control.

 

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Japan to Regulate Crypto Wallet Services

Japan’s Financial Services Agency (FSA) is planning to impose regulations on cryptocurrency wallet service providers, according to a published account of its latest meeting.

The agency gathered earlier this week for its ninth cryptocurrency study group meeting. The FSA also hosts regular study group meetings to discuss various crypto regulatory issues, particularly those concerning the regulation of cryptocurrency exchanges.

A major topic of its last meeting was a plan to regulate wallet service providers, given that currently, FSA regulations are not applicable to such services as such providers are not in the business of actually trading. The agency now feels that because such providers manage transfers and storage of digital currencies, they should be brought in line with financial regulation.

It was revealed that any new regulations would not apply to wallet software developers and hardware wallet manufacturers as these are often simply coded private facilities with no company backing.

The focus is again on money laundering and as such, Financial Action Task Force (FATF) regulations will become the basis for the new regulations according to the FSA. The FATF is an intergovernmental organization that designs and promotes policies and standards to combat financial crime. Recommendations created by the task force target money laundering, terrorist financing, and other threats to the global financial system.

Other issues discussed in this ninth meeting of the cryptocurrency study group around the topic of wallet services touched on stolen funds during cyber-attacks, wallet failures, money laundering, and other risks shared by crypto exchanges.

The FSA is continually updating its cryptocurrency regulations. At this last meeting, further measures to regulate the industry were discussed, such as financial audits and the separate management of funds belonging to service providers and customers. Also, it was suggested that during a transition period for introducing new wallet regulations service providers would not be able to add new businesses, customers, or coins supported by the wallet.

 

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Ready Steady Go: On Your Marks for the Stablecoin Steeple Chase

With Japanese regulators confirming that stablecoins do not fit the definition of cryptocurrencies outlined in the country’s Payment Services Act, the stablecoin chase seems well and truly on in that country and, so it appears, everywhere else.

As Bitcoin News reported yesterday, according to the FSA, firms issuing stablecoins in Japan need not register for licenses, though they may need to register for issuing payment instruments. Significantly, this clarification of the FSA’s 2017 guidelines means that large stablecoin transactions, up to JPY 1 million (around USD 9,000) can be made unhindered by the same guidelines which apply to other transactions.

A stablecoin is a cryptocurrency pegged against something of widely-accepted value such as a state currency, typically the US dollar, giving it price-stable characteristics. It is seen by some as a safe hedge against the volatility of conventional cryptocurrencies such as Bitcoin or Ethereum. Currently, they are underutilized apart from traders using them to guard their positions during bear markets.

What is the current state of play in the apparent rush towards stablecoins? There seems to be no stopping the charge as the London Block Exchange (LBX) announced its plans to launch the LBXPeg, a stablecoin backed by the UK pound recently.

LBX has stated the current stablecoin market needs disruption due to many firms’ lack of transparency, commenting that “many available stablecoin offerings are inadequate for the needs of businesses, traders and consumers” and citing “opaque management structures, distribution schedules, and auditing processes”.

Nick Tomaino, founder of @1confirmation, calls stablecoins “the holy grail of cryptocurrency”, suggesting that coins such as Bitcoin were too prone to volatility. Tomaino suggests that the US dollar is a fiat working example of stability. The dollar falls down as a stablecoin, primarily because it lacks user control being dependent on the Federal Reserve and the US banking system.

The Winkevoss Twin would clearly agree with Tomiano’s “holy grail” epithet, given their recent success with the New York regulator. The Gemini Dollar, launched by the Winklevoss twins, will allow users a one-to-one exchange on the US dollar on the Ethereum blockchain.

A Hong Kong-based blockchain investment firm is also planning to launch a new stablecoin backed by the Japanese yen. The company, Grandshores Technology Group, will launch the funding round in late 2018 or early 2019. Grandshore feels that the stablecoins will have mileage on release. It argues:

“We believe cryptocurrency traders and exchanges will be potential takers of these stablecoins… We are entering the next stage of blockchain evolution, a stage which is akin to when computer operating system was transiting from MS-DOS to MS-Windows.”

Australia company Bill Trade, which launches its own coin next year, sees stablecoins as solving “one of the principal issues that may drive investors seeking steady returns and merchants that currently accept traditional currency away from digital currencies: volatility”.

The chase is on.

 

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Japanese Crypto Industry Granted Self Regulatory Status

Japan’s cryptocurrency industry self-regulators, the Japan Virtual Currency Exchange Association (JVCEA),  has been approved by the national Financial Services Agency (FSA) to be officially recognized in its regulatory position, effective immediately.

As reported by Bitcoin News in August, JVCEA applied for recognition from the FSA after establishing a 16 member strong team of licensed cryptocurrency exchanges and producing a nearly 1,000-page report on self-regulatory guidelines for crypto trading platforms to adhere to. Following the USD534 million heist that took place on the local Coincheck platform earlier this year, JVCEA is looking to prevent further incidents by imposing themselves as security inspectors.

Alongside monitoring security measures, JVCEA will handle other specific tasks such as evaluating the integrity of initial coin offerings (ICOs).

The FSA details in its terms of acceptance that the new regulators must issue each cryptocurrency exchange working guidelines, as well as elaborate on the anti-money laundering (AML policies). It must also enforce a set of rules that protect investors’ assets.

JVCEA has already published its key guidelines for cryptocurrency exchanges online, which have gone into full effect now the FSA has officially approved. Officially sanctioned insider bodies already exist in industries such as securities brokerages.

Speaking to Reuters anonymously, an FSA official said that self-regulation of the industry would be more efficient than the Japanese government, with industry leaders more equipped to deal with the fast-paced changes, adding ”It’s better for experts to make rules in a timely manner than bureaucrats do.”

Currently operating with 15 employees, the new watchdog plans to increase this to 20 by next month.

The FSA’s approval keeps Japan on track with some of the most progressive cryptocurrency regulations of any country. Last year it became the first nation to regulate cryptocurrency exchanges, requiring them to register with the FSA.

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Norway Introduces New Rules for Crypto Service Providers

Norway’s financial regulator has announced new regulations specifically aimed at cryptocurrency providers which will take effect on October 15.

The Norwegian Financial Supervisory Authority (FSA) is enforcing the regulations as part of a government push to ensure that Norwegian cryptocurrency exchanges and those overseas operating in the country observe domestic money laundering rules.

The laws won’t affect individuals trading in cryptocurrencies in Norway as the FSA has specifically stated that the new legislation will only affect, “Norwegian providers of virtual currency exchange and storage services.”

Thus, those storing private keys on behalf of customers are considered to be involved in “the transfer, storage or purchase of virtual currency” and come under the new guidelines. However, “Storage solutions that do not store private cryptographic keys (often referred to as non-custodial wallets) are not covered by the regulations,” such as “Individuals who buy or sell their own virtual currencies for private purposes” and those who “assist friends and acquaintances with the purchase and sale of virtual currencies” won’t be subject to the FSA’s new reporting requirements.

Norway is one of a growing number of nations exploring the viability of a central bank cryptocurrency. There is no specific law telling Scandinavian banks how to view cryptocurrency, there is, however, anti-money laundering legislation already in place. These laws demand that those offering financial services must follow KYC practices. Another Scandinavian central bank, Sweden’s Riksbank, has considered its own cryptocurrency e-krona, with the same motivations as its Norwegian neighbor, having observed cash use on the decline across the country.

The focus has fallen on Norway recently with more cryptocurrency miners reportedly looking to move their operations to Norway and its Swedish neighbor. Hydroelectricity and other renewables from more developed European countries allow for cheaper electricity tariff’s beneficial to profits, as electricity is the main overhead in the crypto mining process.

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Japan Gets New Pro-Crypto Minister to Promote Tech and IT

Japan’s prime minister has appointed the country’s new Science Minister with a proven pro-blockchain history.

Japan’s latest cabinet appointment Takuya Hirai will also take on the important post of Minister of Technology and IT at a time when Japan is ramping up its focus on all things blockchain across the sectors.

The cryptocurrency community will be looking at this appointment with great interest as Minister Hirai, a member of Japan’s Liberal Democrats, has been a significant political player in the past in determining cryptocurrency legislation. He has also been a promoter of emerging technologies such as blockchain.

Earlier this year Hirai was General Advisor to a government-backed study group which had been asked to lay down further rules for the adoption of ICOs, and to offer proposals to the Financial Services Agency (FSA), Japan’s financial regulator. The minister was also the architect of the 2017 law that legalized cryptocurrencies in the country.

Hirai hasn’t shied away from promoting blockchain in Japan and as part of his role as chairperson of the Liberal Democratic Party’s IT Strategy Special Committee, as well as chairperson of the Fintech Promotion Parliamentarians’ Federation; he continues to advance the interests of blockchain companies. Hirai also drafted Japan’s basic cybersecurity law, which was enacted in 2015

The Financial Services Agency (FSA) has tightened its registration screening for cryptocurrency exchanges this year. The FSA is cleaning up its act somewhat after recent hackings, notably following the compromise of Tokyo-based Coincheck’s exchange, with losses to the tune of roughly $530 million. The FSA followed this up by a series of onsite inspections recently which revealed that best practice was not being observed by many exchanges.

It’s thought that Hirai’s appointment, as a minister versed with the new technology and digital currency, demonstrates the government’s determination to not only advance blockchain technology in Japan but to also clean up the industry and create workable rules for ICO’s, and also in the monitoring of exchanges by the FSA.

Due to Japan’s vibrant cryptocurrency space, there are currently estimated to be about 160 exchanges hoping to enter the Japanese market.

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Japanese Regulators Introduce New Crypto Exchange Screening Rules

Japan is to tighten some of its screening procedures for government approval for cryptocurrency exchanges.

A Japan Times report suggests that the Financial Services Agency (FSA) has “tightened its registration screening for cryptocurrency exchanges to see whether they are properly conducting risk management”, although the report hasn’t been confirmed by Japanese authorities.

According to sources, these new measures would essentially delve deeper into the nature of the applications than is currently the norm for applicants when making a case to operate in Japan, with a four-fold increase in questions. It is reported that possible links to antisocial groups will now be investigated and companies decisions making processes. The unnamed source stated on the weekend that the FSA had:

“…increased the number of questions asked when screening applications to about 400 items, up fourfold…Previously, the questions only covered such items as an applicant’s financial status and measures to ensure system safety.”

The FSA is cleaning up its act somewhat after recent hackings, notably following Tokyo-based Coincheck’s exchange was compromised to the tune of roughly USD 530 million. It followed this up by a series of onsite inspections recently which revealed that best practice was not being observed by many exchanges.

A key finding of the report following the last FSA inspections was that exchange’s internal control systems were showing signs of lagging behind, given the rapid increase of transactions; an increase partly accredited to investors climbing back into the market after 2017 recent falls. The Japan Virtual Currency Exchange Association (JVCEA) had called for trading limits in line with FSA suggestions earlier this year.

As part of the newly heightened examinations of exchange applications by the FSA, the agency earmarked six fully-licensed crypto exchanges which have been served with business improvement orders. Also, 13 exchanges who are operating whilst waiting for approval have withdrawn their applications, indicating just how rigidly they expected to be examined under the new application guidelines. Only three exchanges are left operating awaiting vetting by the FSA: Coincheck, Lastroots, and Everybody’s Bitcoin.

Due to Japan’s vibrant cryptocurrency space, there are estimated to be about 160 exchanges hoping to enter the Japanese market. The JVCEA recommended its own “appropriate regulations” for growth by proposing new rules that would affect the way exchanges operate, placing privacy coin listings and insider trading under the regulatory microscope.

 

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