Japan’s FSA Warns Unregistered Overseas Cryptocurrency Exchanges, Tightens Crypto Regulations

Highlights:

• Overseas cryptocurrency exchanges without proper registration are being warned by Japan’s FSA.
• New laws will prevent asset leakage if unregistered overseas cryptocurrency exchanges go bankrupt, protecting investors.
• Japan balances innovation and consumer protection, regulating unregistered overseas cryptocurrency exchanges and DeFi platforms.

Five unregistered overseas cryptocurrency exchanges have received a warning letter from Japan’s Financial Services Agency. Among the exchanges are KuCoin, Bybit, bitcastle LLC, MEXC Global and Bitget Limited operating without the proper registration, breaching Japanese Law.

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Furthermore, the Payment Services Act also requires cryptocurrency exchanges to register with the FSA or local financial bureaus in order to provide services to its residents legally. This regulation ensures that exchanges comply with domestic financial laws and protect consumers.

According to CoinPost, the Japanese Financial Services Agency issued warnings to five unregistered overseas cryptocurrency exchanges, including KuCoin, bitcastle LLC, Bybit Fintech Limited, MEXC Global and Bitget Limited. The FSA pointed out that these exchanges provided…

— Wu Blockchain (@WuBlockchain) November 29, 2024

Risks of Unregistered Exchanges

These exchanges are operating without registration and therefore are outside of the FSA’s oversight. Therefore, customers get no protection and investors are subject to huge risks. Additionally, no guarantees exist that these platforms would set customer capital apart properly without regulatory oversight.

According to Japanese law, investors cannot expect to receive compensation in the event of disputes or unforeseen events. Moreover, the lack of oversight carries concerns over possible illegalities, including fraud and money laundering. Overseas cryptocurrency exchanges which are unregistered may not have adequate anti-money laundering (AML) provisions, or know-your-client (KYC) protocols.

Japanese authorities do not protect the users of unregistered overseas cryptocurrency exchanges. If problems such as bankruptcy or asset mismanagement happen, investors could lose and not have recourse. While this situation points to a need in having a regulated platform, it demonstrates to us a deep need for regulated platforms in general.

Japan Strengthens Crypto Regulations with New Asset Protection Measure

Recently, the Financial Services Agency (FSA) of Japan announced their plans to introduce a “holding order” under Payment Services Act. This measure is implemented to stop domestic assets from slipping out of the country in case of overseas crypto exchanges amid bankruptcy. FTX’s collapse pushed the FSA to review a comprehensive crypto regulatory and enhance investor protection.

Only firms registered under the Financial Instruments and Exchange Act are subject to strict regulations currently. However, the proposed legal change would expand these regulations to all virtual currency exchange companies registered under the Payment Services Act. Crypto exchanges would no longer be allowed to transfer Japanese residents’ assets to foreign entities, protecting investors from potential loss, under the holding order.

However, Japan already has preventative measures in place and has 29 registered exchanges in the country. Its Japanese subsidiary was a financial instruments firm when FTX collapsed, enabling a holding order to be issued. Under the amendment, such assets would be kept in Japan even if the headquarters are exchanged, and the system would help to reassure investors.

Meanwhile, recent statements from Japan’s leadership indicate a commitment to fostering a healthy cryptocurrency ecosystem. Prime Minister Fumio Kishida has supported technological innovation, including blockchain and digital assets. It represents growth potential for the industry.

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