Japan: FSA struggles with ‘quasi-operators’

TOKYO (The Japan News/ANN) - The Financial Services Agency is debating whether to allow the registration of quasi-operators of cryptocurrency exchanges, in the wake of the recent massive theft of digital currency from exchange service provider Coincheck Inc.

 Quasi-operator is a special category for cryptocurrency exchange businesses in which the FSA allows the operation of exchanges that were started before the registration system was put in place.

 The agency is prepared to refuse registration for operators that fail to take safety measures and properly manage customers’ assets, but that could cause a backlash from cryptocurrency operators and users.

 The revised Payment Services Law, which took effect in April 2017, required cryptocurrency exchange operators to register with the FSA. Sixteen such operators have registered so far. Among unregistered operators, 16 firms, including Coincheck, conducted operations before the law took effect, and they have been allowed to continue doing so as quasi-operators.

 After the theft from Coincheck, the FSA indicated it would conduct on-the-spot inspections for all quasi-operators and examine whether they take appropriate safety and customer protection measures.

 The revised law does not specify a period for quasi-operators to conduct business. However, the agency concluded that it is not desirable, in terms of user protection, to allow unregistered operators to still be in business nearly one year after the enforcement of the revised law.

 According to sources related to the FSA, the agency has told some quasi-operators that they will have difficulties registering, as they have yet to take sufficient measures for safety and customer protection.

 Should they fail to improve their situation quickly, the FSA is considering notifying them that their registration has been rejected based on the revised law, the sources said.

 However, as these unqualified operators already have customers, there are concerns that distributing such notices could draw criticism that the FSA is acting high-handedly and causing turmoil among customers. 

 Some observers said the FSA should persuade such operators to voluntarily withdraw their applications, if they believe it will be difficult to be registered.

Over 100 seeking entry

 More than 100 firms are planning to enter the crytocurrency exchange business, which has kept the FSA busy dealing with them, according to a source.

 “We’ll take solid safety measures,” Line Corp. President Takeshi Idezawa said at a press conference on Jan. 31 — five days after the Coincheck incident. 

 Idezawa announced that Line was preparing to expand into cryptocurrency trading services using a Line app.

 Since last year an increasing number of firms, such as megabanks and internet securities firm Monex Group, have expressed their intention to enter the digital currency business. This is because block-chain technology — on which cryptocurrency transactions are based — will be able to be used in various kinds of businesses in the future.

 There is also the fact that sharp rises in the price of cryptocurrencies led more people to invest in them, heightening the anticipation of higher profits in cryptocurrency-related businesses.

 Coincheck, which started operating only about three years ago, has said it will repay its affected customers about ¥46 billion. The announcement unexpectedly gave people an impression that the cryptocurrency business is extremely profitable.

 Even after the theft, the enthusiasm of domestic firms to enter the business has not dimmed.

 The FSA set up an about 30-member team in August last year to handle cryptocurrencies, but it is short-handed partly because they are more carefully screening firms after the incident.

 Normally, the agency hopes to hire people who are well-versed in cryptocurrencies, but it is difficult to secure adequate personnel due to competition for recruiting manpower in the industry.

 The FSA is currently dealing with the situation by utilizing FSA officials in charge of insurance, securities firms and regional financial institutions.

 “There is no prospect for registration. The start of our operations, planned for this spring, could be delayed,” said an official of CyberAgent Inc., a major information technology firm.

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