Japan’s financial regulator Financial Services Agency (FSA) has tightened its grip on the registration screening process of cryptocurrency exchanges, as reported by The Japan Times on 2nd September. As per the sources, this move has been implemented in an attempt to evaluate the risk management conducted by these exchange operators.
These registration processes are currently carried out under the Payment Services Act that was amended on 1st April 2017 to include regulatory framework for virtual currency businesses. The revision was conducted for safeguarding the cryptocurrency holders and users in Japan, making it the first developed country to do so.
The number of questions asked by Japan’s financial watchdog for evaluating an application has been increased fourfold, climbing up to 400 items. The exchange aspirants are now required to submit minutes of the board meetings to the FSA for screening if the discussions organised are ample for maintaining the exchange’s financial state along with the security of its digital systems.
The questions asked previously were solely targeting matters like the financial status and implementation of measures for ensuring the safety of systems. However, the latest revision will additionally assess the involvement of the company executives in decision-making processes by screening minutes of the board meeting, as shared the sources.
The FSA is extremely proactive in its approach as it does not blindly rely on the answers submitted by these exchange operators. Instead, the regulator conducts frequent on-site inspections for verifying these answers.
The revised screening process will also be conducting regular assessments of applicant’s shareholder composition. By including this step in its supervisory schedule, the FSA aims to monitor if the internal system of the applicant’s company is capable of checking “for links to antisocial groups.”
These measures have been initiated after the on-site inspections by the FSA revealed unsystematic supervision of existing cryptocurrency exchanges, which includes the absence of recording meeting minutes. Currently, over a hundred companies are interested in registering themselves as crypto exchange operators. Some of these companies might opt out of the registration process given the stricter regulations, as noted by market analysts.