According to a Nikkei report on Thursday, two cryptocurrency exchange operators -Tokyo GateWay and Mr. Exchange are withdrawing their applications to operate as recognized exchange operator under Japan’s Financial Services Agency (FSA), the country’s financial regulator. Earlier this month, the FSA had ordered both exchanges to improve their data security and overall cybersecurity posture which were found to be inadequate by the regulator.
According to the report, both operators will shutter their businesses after returning their customers’ fiat and cryptocurrency holdings.
Prior to their closure, Mr. Exchange and Tokyo GateWay were both in the process of securing a license as part of a scheme introduced by Japan in April 2017.
In a blog post March 29, the former confirmed it had withdrawn its application:
“While this is a regrettable result, at present we have determined that it is difficult to be in a state of readiness to be able to respond to changes in the virtual currency landscape, so we decided to withdraw the application for a virtual currency exchange business.”
Tokyo GateWay’s website is currently offline, with no official correspondence available to confirm the Nikkei report.
The development comes amid an ongoing crackdown on unregistered exchanges that are found wanting with their security measures following the theft of 500 million NEM tokens from Tokyo-based Coincheck in late January, valued at approximately $530 million at the time. The incident is now seen as the biggest cryptocurrency exchange theft in history.
On March 8, the FSA issued month-long business suspension orders to exchange operators FSHO and Bit Station after pointing the finger at lax cybersecurity practices and inadequate money laundering measures.
Today’s report suggests that three other unregistered exchange operators – Raimu, bitExpress and the currently suspended Bit Station – have also withdrawn their applications to register with the FSA. The Nikkei adds that more application withdrawals are expected to follow with the FSA giving ‘several exchanges a chance [to] voluntarily close before ordering them to do so.’
New Japanese legislation that came into effect in April 2017 – notably recognizing bitcoin as a legal method of payment – ruled that cryptocurrency exchange operators must register with the FSA while adhering to guidelines and standards to earn a license for domestic exchange operations. Exceptions, on a provisional basis, were made for operational exchanges predating the new legislation. Coincheck is a notable example of an unregistered exchange that continues to operate, despite the comprehensive hack.
As things stand, the FSA has granted licenses to a total of sixteen cryptocurrency exchange operators that are now registered, with an additional sixteen exchanges allowed to operate while their applications were being screened.
Last week, Binance, the largest exchange by 24-hour trading volume, was also issued a warning by the FSA, as it had begun operations in Japan without a license. Binance, originally based in Hong Kong, is now seeking to relocate to Malta, although it says it is also working with Japanese regulators to remedy its situation there in the meantime.