Japan's Financial Services Agency (FSA) has issued business improvement orders to several licensed cryptocurrency exchanges, mandating enhanced systems to meet Anti-Money Laundering (AML) requirements. This move follows the regulator's discovery of insufficient Know Your Customer (KYC) checks and other compliance gaps during recent inspections.
Key Findings from FSA's Investigation
- Inadequate AML/KYC Measures:
Several exchanges failed to properly verify user identities or prevent transactions by "bad actors." - Asset Segregation Concerns:
The FSA identified instances where client assets were not sufficiently separated from exchange funds. - Scope of Enforcement:
Orders were issued to 12 exchanges—two fully licensed operators and 10 "quasi-operators" (entities with pending license applications).
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Regulatory Timeline in Japan
| Year | Milestone |
|---|---|
| 2017 | Payment Services Act mandated exchange licensing |
| 2018 | FSA tightened AML/KYC rules |
| 2023 | Self-regulatory organization established |
Industry Response
- Some exchanges chose voluntary shutdowns over compliance costs
- A major Japanese fintech firm recently announced plans to launch a crypto exchange
- The FSA will publish full inspection results later this month with updated guidelines
Why This Matters
Japan remains a leader in crypto adoption despite strict regulations. The FSA's actions aim to balance innovation with consumer protection following high-profile incidents like:
- The $533M Coincheck hack (2018)
- Mt. Gox collapse
FAQ Section
Q: How many exchanges received improvement orders?
A: Twelve—two licensed and ten pending-license operators.
Q: What's the main compliance issue?
A: Insufficient KYC checks and weak AML controls.
Q: When will full results be published?
A: Late this month, along with new protection guidelines.
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Looking Ahead
Japan continues refining its regulatory framework while maintaining robust crypto market activity. These enforcement actions demonstrate the FSA's commitment to creating a safer ecosystem for investors and operators alike.