Japan Regulator Surprises Crypto Exchanges with Sudden On-Site Inspections

Japan’s Financial Services Agency (FSA) has reportedly carried out unscheduled onsite inspections at cryptocurrency exchanges Huobi Japan and Fisco Digital Asset Group(FDAG).

According to Reuters, the inspection is taking place so that the regulatory body can find out if the exchanges have been taking adequate steps to protect their customers, as well as to check for legal compliance.

The report state that the FSA believes that both exchanges currently are not taking the required actions to adequately protect customers and abide by the regulator’s AML requirements. The inspection could potentially lead to a suspension of their operating licenses if enough evidence of these infractions is found, as the FSA continues to hold Japan’s crypto trading market to a world-leading regulatory standard.

FSA Goes After Errant Exchanges

Sources suggested that the FSA found several inadequacies during the inspection, but as yet there is no indication as to how serious they were, or if the regulator will take any action against the exchanges as it has done in the past with other errant platforms. The FSA apparently also carried out an inspection on April 17 where it took a look at the systems the exchanges have in place to prevent money laundering.

This is in line with its digital currency trading policy which seeks to position Japan at the helm of Fintech innovation and prevent occurrences like the ongoing Mt. Gox debacle which has dragged on since 2014. All cryptocurrency exchanges have had to register with the FSA since Japan introduced crypto trading regulation in 2017, becoming the first country to do so.

Uncertainty Amid Regulatory Scrutiny

Both crypto exchanges have recently gone through a shakeup in senior management, particularly Fisco which has just taken over Zaif following its $60 million loss in the 2018 hack.  The takeover saw its operations expand, taking on an additional 730,000 accounts to add to its already established customer base. According to the report, the inspection by the FSA will reveal how protected Fisco users are and if the exchange has a functional internal control system.

Huobi Japan on its part is the result of the acquisition of BitTrade by the Huobi Group. The company currently has more than 100 digital currencies listed on its exchange, as well as over 3 million users in at least 130 countries. Sources say the FSA will specifically examine Huobi’s anti-Maneron system.

At the moment, both exchanges remain tight-lipped about the implications of the FSA action. Fisco has declined to confirm whether the inspection took place or indicate how it would affect their operations. A spokesman for Huobi Japan informed Reuters Tokyo that he “can not answer anything about the exchange with the FSA and the inspection.”