All cryptocurrency platforms in the country must meet five new criteria set by the Financial Services Agency (FSA). These rules apply to both existing market participants and newcomers just submitting applications.
The new rules are aimed at improving the market, protecting investors and preventing money laundering. To this end, the FSA has released a new five-point program that will help effectively regulate the cryptocurrency market, as well as prevent further hacks of crypto platforms, such as Coincheck in January this year.
New rules
1. System management
Crypto exchanges can only store currency on computers isolated from the Internet; storing funds in online wallets is prohibited. Two-factor authentication (2-FA) is also being introduced for currency transfers.
2. Preventing money laundering
Exchanges are required to comply with user identification protocols for large crypto asset transactions and implement KYC (know your customer) security procedures.
3. Managing Client Assets
Exchanges are required to manage client assets separately from exchange-traded funds. Trading platforms must adhere to a set of rules and regulations that prohibit them from using client money for exchange transactions. Mandatory daily checks of each client's account balances and checks of the current account several times a day are being introduced to identify and prevent illegal transactions.
4. Listing restrictions
A restriction on the listing of exchanges is being introduced. A cryptocurrency that has a high level of anonymity makes it possible to use it for money laundering and will be prohibited. The FSA already has a blacklist of such “too private” coins.
5. Internal procedures
Crypto platforms must clearly distribute management functions. The system development functions will be separated from the asset management function so that no one managing the assets can manipulate the system. The same clear separation is required between shareholders and management of the exchange. This requirement is fairly standard in the financial world.
Monitoring using the new five-point system from the FSA will allow for a detailed assessment of the risk and possible negative consequences.. Registration of cryptocurrency platforms involves going through several stages. The first stage is the review of all documents for compliance with the primary requirements, the second is a direct inspection by exchange inspectors, which includes the study of all the nuances of the work, including staff and system operations.
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