July 16, 2018
Japanese regulators need to do more to ensure the safety and privacy of users dealing with crypto-currency exchanges.
The present sloppy state of affairs of virtual money exchange operators cannot be left unchanged. The Financial Services Agency should strive to take effective measures for the sake of users’ security.
Six virtual money exchange operators, including bitFlyer Inc., based in Tokyo, have been given a business improvement order by the agency, in accordance with the revised law on fund settlements. The order was issued primarily for such issues as the inadequacy of their management systems.
The agency’s inspections found that multiple operators had not properly carried out a separation of customer funds and their own assets.
There are also many operators that had neglected to strengthen their systems against such threats as cyber-attacks. Their prioritization of profits and neglect of an issue as important as user security cannot be overlooked.
As the world of virtual currencies is highly anonymous, there are fears that they can be abused to launder money or used in other crimes.
In disregard of such fears, there have been cases in which operators, despite their having been aware of the dealings of customers who were believed to be members of antisocial groups, did not have such transactions suspended. There were also operators that had not compiled lists of antisocial forces.
Their level of awareness concerning the prevention of unlawful dealings is surely too low.
Even more problematic is that registered operators whose operations had officially been authorized by the agency were slapped with administrative punishments simultaneously.
With the latest sanctions, seven out of the 16 registered operators have been punished. There is also a possibility of the number of such operators increasing in the days ahead.
Rigorous registration needed
It should be said that the agency failed to screen them thoroughly. There was also an operator which, at the time of the agency’s screening for registration, gave an explanation that differed from the facts. It may be necessary to reexamine whether the system is defective in itself.
A panel of experts for the agency is working on amending the system concerning virtual money. It is hoped that the panel will present effective measures, including ones to make registration examinations, inspection and supervision more rigorous.
Unlike legal tender such as the yen, cryptocurrencies have no backing, such as one provided by the state or by a central bank.
The actual state of affairs is that virtual money, which has wildly fluctuating value, is not effectively functioning as a means of settlement, for instance.
Virtual currency trading, which has turned into a money game, has been growing sharply. According to an aggregate figure provided by operators, the number of domestic customers tops the 3.6 million mark.
While arrangements for users’ security are yet to be fully implemented, should exchange operators go bankrupt or have their assets siphoned out, the repercussions could be immense. The business operators should act together to make efforts in strengthening their internal controls.
Exchange operators have established a self-regulatory organization and began drawing up self-imposed rules as to unfair trading, the management of clients’ assets and so forth. Questions are being raised about whether they can demonstrate their ability to clean themselves up.
It is also important for virtual money users to clearly recognize the risks involved, such as the possibility of prices plunging and the actual state of affairs of an industry beset with problems.