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Japan Set to Issue First Rejection of Cryptocurrency Exchange Application

Last Updated March 4, 2021 5:08 PM
Samburaj Das
Last Updated March 4, 2021 5:08 PM

Japan’s financial regulator is reportedly set to issues its first-ever rejection of an application to register a domestic cryptocurrency exchange business.

Yokohama-based trading platform FSHO is likely to become Japan’s first cryptocurrency exchange operator to see its application denied by the Financial Services Agency (FSA), according to a Nikkei  report. A lack of compliance with financial guidelines and a ‘sloppy’ operational infrastructure have been cited as reasons for the rejection order.

FSHO was one among sixteen cryptocurrency exchanges that are allowed to operate in Japan while their applications for registering an exchange with the FSA – now mandatory – undergo review.

However, the exchange has previously been hit with two business suspension orders in March and April due to repeated instances of failing to report high-value trades, a red-flag for the possibility of money laundering, and a lack of implementing stringent know-your-customer (KYC) norms.

“[T]he exchange did not adequately verify the identity of customers in transactions suspected of financial crime” the Nikkei report read, adding that the FSA is likely to bar the exchange altogether and deny its registration following its current suspension order which runs until Thursday, June 7.

A roughly-translated excerpt from the report added:

The FSA aims to demonstrate its attitude toward building a healthy trading environment in Japan by barring an unworthy exchange operator.

The increased scrutiny into the sector comes in the months following this year’s infamous $530 million theft of NEM tokens from Tokyo-based cryptocurrency exchange Coincheck. Other crypto exchange operators have withdrawn their applications altogether after previously being struck by business improvement orders by the regulator.

As things stand, the FSA has granted licenses to a total of sixteen cryptocurrency exchanges to operate domestically following last year’s legislation wherein Japan’s updated Payment Services Act recognized bitcoin as a legal method of payment.

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