In a bid to circumvent digital currency heists going forward, Japan’s Financial Services Agency is going to implement stricter guidelines for cryptocurrency exchanges, according to Nikkei Asian Review.
The move follows the major security breach at Coincheck in which the company lost nearly $530 million in NEM tokens to hackers.
Under the new guidelines, exchange operators registering with the authorities would have to meet five criteria:
First, exchanges would now be subject to stricter system management requirements. They would not be allowed to store currency in internet-connected computer. Also, exchanges would be required to set multiple passwords for currency transfers.
Second, exchanges would have to ramp up their efforts to prevent money laundering activities. This includes customer verification, particularly for large transfers.
Third, exchanges would have to run checks on customer account balances multiple times a day to detect signs of any unauthorized diversions. They would also be required to have appropriate rules prohibiting their officers from using client funds.
Fourth, the FSA is also planning to impose restrictions on the kind of cryptocurrencies allowed at these registered crypto exchanges. It will ban those cryptocurrencies that offer a high level of anonymity and used for money laundering activities.
Fifth, exchanges would be subject to stricter internal regulations – they would need to separate shareholders from management, as well as separate system development roles from asset management roles to prevent employees from rigging the system.
The new rules go beyond documentation and will involve on-site visits from officials as well. After reviewing registration applications from exchanges, the FSA will send inspectors to those that pass the initial screening.
The new five-point framework is expected to be implemented when the FSA begins accepting new registration applications again, expected this summer. Existing operators would also be required to meet these requirements.
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