Japanese financial regulator issues business improvement order to Coincheck

Maria Nikolova

The cryptocurrency exchange will have to investigate the theft of about JPY 58 billion in digital money.

Japan has been considered as somewhat of a haven for cryptocurrency businesses thanks to the legal framework for such entities. But a JPY 58 billion theft from cryptocurrency exchange Coincheck is now prompting the regulators to reconsider their approach towards the sector.

Earlier today, the Financial Services Agency (FSA) announced the issuance of a business improvement order to Coincheck following an “incident” from last Friday that saw the theft of JPY 58 billion worth of NEM digital money from the exchange.

The regulator orders the company to determine the facts and causes of this case and to issue proper response to customers. In addition, Coincheck is ordered to strengthen the management control of its risk management system and to clarify who bears the responsibility for the theft.

The company will also have to formulate measures to prevent recurrence of the incident.

Coincheck has until February 13, 2018, to respond to the regulatory orders.

According to Japan’s Nikkei newspaper, the incident at Coincheck will result in changes in the oversight of other cryptocurrency businesses in Japan. “Inappropriate management of system risks had become the norm at Coincheck,” the FSA said.

The watchdog will also examine the operations of other cryptocurrency exchanges to ensure they have adequate safety mechanisms in place. This may include on-site inspections.

Virtual currencies spark a growing number of questions among investors in Japan, according to data provided by the FSA in December last year . The FSA Counseling Office for Financial Services Users received a total of 685 investor enquiries about virtual currencies in the quarter to September 30, 2017. This is more than 26% higher than in the quarter to June 30, 2017, when the FSA received a total of 543 such enquiries. The great majority of these questions are general enquiries, the FSA noted.

The numbers were released soon after Japan’s National Police Agency announced that cybercrime reports reached record high in the first six months of 2017. A total of 69,977 reports of cybercrimes were received by the police in the January-June 2017 period, up 4.9% from the equivalent period in 2016. More than 20 incidents involving the theft of Bitcoin and other crypto currencies were reported to the police, leading to losses of JPY 59.2 million. There were 13 cases involving Bitcoin hacks, 11 cases involving Ripple and 2 cases involving Ethereum. There was also a report about several digital currencies having been attacked at the same time. Crypto currency thefts were reported in 13 prefectures.

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