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Japan’s Finance Minister Tells Cryptocurrency Exchanges to Toughen Up

Last Updated March 4, 2021 5:04 PM
Samburaj Das
Last Updated March 4, 2021 5:04 PM

Japan’s finance minister has called on cryptocurrency exchanges to strengthen their cybersecurity posture and standards following the $530 million hack of XEM tokens from Tokyo-based exchange Coincheck.

Speaking to reporters after a cabinet meeting on Tuesday, Japanese finance minister Taro Aso demanded the strengthening of management systems at domestic cryptocurrency exchanges while urging regulators to “appropriately monitor” the ecosystem to protect consumers.

“It was a matter of great regret that illicit access caused a massive cryptocurrency outflow from Coincheck on Friday,” Aso told reporters, as reported by Reuters .

He went on to add:

“The Financial Services Agency [Japan’s financial regulator] must appropriately monitor cryptocurrency traders to protect users. We will appropriately weigh the balance between promotion of innovation and protection of users in (supervising) cryptocurrency exchanges.

Aso, who also serves as Japan’s financial services minister, has previously been critical of excessive regulation on cryptocurrencies.

The finance minister’s remarks follow the FSA’s own statement on Monday where the regulator revealed it would investigate all cryptocurrency exchanges including the possibility of on-site inspections. The FSA has also ordered Coincheck to improve its cybersecurity standards.

As reported previously, Coincheck executives admitted to storing funds in its hot wallet, which was ultimately compromised. Hot wallets are susceptible to unauthorized access, unlike cold wallets that are secure and kept offline. “It was hard for us to manage cold wallets,” Coincheck president Koichiro Wada said in a press conference in the aftermath of the hack, pointing to “technical reasons and understaffing.”

Coincheck also stored the 500 million NEM tokens in a hot wallet without multi-sig security, further underlining its failings as a custodian of customers’ cryptocurrencies.

On Monday, Japan’s primary financial diplomat Masatsugu Asakawa revealed cryptocurrency regulation ‘was likely’ to be discussed among G20 nations’ finance ministers and central bankers in Argentina during this year’s meeting in March.

Featured image from Shutterstock.