In a strategic move to restore confidence and strengthen oversight, the Japanese Financial Services Agency (FSA) has announced a comprehensive overhaul of its cryptocurrency exchange registration framework. This decision comes in the wake of the high-profile CoinCheck hack and a series of regulatory inspections that exposed critical vulnerabilities across multiple platforms.
The revised rules aim to tighten scrutiny over both pending and licensed exchanges, ensuring robust security, transparent governance, and stronger investor protection. With over 100 companies currently in the application pipeline—including major players like LINE—the FSA’s updated approach signals a new era of accountability in Japan’s digital asset ecosystem.
Strengthening the Exchange Approval Process
The FSA is intensifying its review procedures for cryptocurrency exchanges that have applied for licensing but have not yet received final approval. These entities, often referred to as “quasi-operators,” were previously allowed to conduct business during the evaluation period—a practice now under strict reevaluation.
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According to reports from Sankei Shimbun, the agency will now implement more rigorous on-site inspections for applicants who pass the initial screening. These audits go beyond paper submissions, focusing on real-world operational resilience and compliance readiness.
If an exchange fails to meet regulatory expectations or neglects to address identified shortcomings, the FSA reserves the right to demand its voluntary withdrawal from the market. This enforcement mechanism is designed to prevent another CoinCheck-style incident, where an unlicensed but operating exchange suffered a $530 million NEM token theft in early 2018.
At the time, CoinCheck had applied for registration months earlier but continued functioning as a quasi-operator—highlighting a critical gap in oversight that the new rules aim to close.
Rebuilding Trust in Japan’s Crypto Industry
Following widespread inspections of all quasi-operators, the FSA uncovered numerous deficiencies in cybersecurity infrastructure, internal controls, and corporate governance. As a result, five firms have already withdrawn their applications, and several others have been ordered to suspend operations.
One notable case involves Campfire, a lesser-known exchange that has expressed willingness to pull its registration request after failing to meet compliance benchmarks. This trend reflects a broader shift: many aspiring operators are opting out rather than face prolonged scrutiny or public exposure of weaknesses.
Even some fully licensed exchanges haven’t escaped attention. Regulators recently inspected Quoine, Tech Bureau, and GMO Coin, with the latter two receiving formal business improvement orders. These directives require immediate action to rectify lapses in user protection systems, audit functions, and organizational structure.
As the FSA emphasized:
“We mainly examine the system of protecting users, the auditing function—which we can’t verify through reports alone—and whether they are exercising proper corporate governance by separating management and execution.”
This hands-on verification process ensures that compliance isn’t just theoretical but embedded in daily operations.
Core Focus Areas of FSA Inspections
- User protection mechanisms: Including cold wallet usage, insurance coverage, and compensation policies.
- Independent auditing: Ensuring third-party verification of reserves and transaction integrity.
- Governance separation: Confirming that executive decision-making is distinct from operational execution to prevent conflicts of interest.
- Cybersecurity protocols: Evaluating resistance to phishing, DDoS attacks, and insider threats.
- Incident response planning: Testing preparedness for breaches, system outages, and customer support surges.
These criteria form the backbone of Japan’s evolving regulatory standard—one increasingly seen as a global benchmark for balanced innovation and risk management.
Over 100 Firms Eye Japan’s Regulated Crypto Market
Despite heightened barriers, interest in Japan’s regulated crypto space remains strong. More than 100 companies are actively pursuing exchange licenses, drawn by the country’s large, tech-savvy population and clear legal framework.
Among them is LINE Corporation, developer of one of the world’s most popular messaging apps, which has since launched its licensed exchange BitMax (now known as BITBOX). The involvement of established tech giants underscores growing institutional confidence in Japan’s long-term digital asset strategy.
However, the path to licensing is no longer lenient. The FSA has made it clear: applicants must demonstrate not just technical capability but also ethical leadership and sustainable business models.
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Frequently Asked Questions (FAQ)
Q: Why did the Japanese FSA change the crypto exchange registration rules?
A: The changes were prompted by the 2018 CoinCheck hack and subsequent inspections revealing weak security and governance at many exchanges. The FSA aims to prevent future breaches and rebuild investor trust.
Q: What are “quasi-operators” in Japan’s crypto market?
A: Quasi-operators are companies that have applied for an exchange license and are allowed to operate temporarily while their application is under review. Under new rules, this status faces tighter controls and potential termination if compliance issues arise.
Q: How many crypto exchanges have withdrawn applications since the crackdown?
A: At least five companies have voluntarily withdrawn their license applications following regulatory scrutiny, with more expected as standards become stricter.
Q: Are existing licensed exchanges also being reviewed?
A: Yes. The FSA has conducted inspections on several licensed platforms, including GMO Coin and Tech Bureau, issuing business improvement orders when necessary.
Q: Is it still possible for new companies to enter Japan’s crypto market?
A: Yes, but the bar is higher. Over 100 firms are still applying, but they must meet enhanced requirements around security, governance, and user protection.
Q: How does Japan’s crypto regulation compare globally?
A: Japan is considered one of the most advanced jurisdictions in crypto regulation—balancing innovation with consumer protection. Its model is often cited by other G20 nations developing their own frameworks.
Looking Ahead: A Model for Global Crypto Regulation?
Japan’s proactive stance positions it as a leader in shaping responsible digital finance. By enforcing strict due diligence, mandating structural safeguards, and holding both applicants and incumbents accountable, the FSA is laying the groundwork for a resilient and trustworthy crypto ecosystem.
For investors and innovators alike, this means greater confidence in platform reliability and regulatory clarity—key ingredients for long-term growth.
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As global regulators watch closely, Japan’s experience may serve as a blueprint for nations striving to balance innovation with stability in the fast-evolving world of cryptocurrencies.
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