Japan cracks down on unregistered crypto exchanges

Japan’s Financial Services Authority (FSA) plans to strengthen internal audit processes at financial institutions, including crypto exchanges. According to a recent statement, the agency aims to address industry gaps and align with global standards in regulatory compliance.

The FSA stated that a roundtable discussion would be used to explore improving internal audits in Japan’s financial sector.

Key participants will include representatives from the Japan Cryptocurrency Exchange Association and other financial industry groups, including the Japan Financial Services Association, Japan Payment Services Association, and Japanese Bankers Association.

This initiative follows a recent FSA monitoring report highlighting weak audit and scrutiny practices among these firms. The FSA plans to revise its “Current Situation and Issues” guidelines to include enhanced auditing measures that reflect international regulatory trends.

Crackdown on unregistered exchanges

The FSA’s efforts follow its recent warning letters to five crypto exchanges accused of operating without proper registration. These exchanges include Bitcastle LLC, Bitget Limited, Bybit Fintech Limited, KuCoin, and MEXC Global.

In Japan, exchanges serving the locals are required to register with the FSA or a financial bureau. The financial regulator stated that any unregistered exchanges operate outside its supervision, which raises concerns about customer asset segregation and platform security.

The FSA warned that users of unregistered exchanges might lack access to asset protection or compensation under Japanese law. This regulatory gap could leave customers vulnerable during disputes or unforeseen incidents.

Cautious approach

These developments suggest that Japan continues to adopt a cautious approach to crypto and is focused on consumer protection.

This week, Japan’s Prime Minister Shigeru Ishiba revealed that the Asian country will not integrate Bitcoin into its reserves despite its growing global acceptance. According to him, digital assets like Bitcoin conflict with the objectives of the country’s financial reserve strategy due to their high volatility.

Japan has reportedly maintained a stringent stance on crypto-related exchange-traded funds (ETFs), even as these products achieve unprecedented success in markets like the United States.

Despite this cautious posture, the country has positioned itself as a digital asset-friendly nation. Recent efforts include a landmark economic stimulus package featuring reforms to the country’s crypto taxation laws.

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