KuCoin, Bybit, Other Exchanges Come Under Japan FSA Regulatory Sweep

Recently Japan’s Financial Services Agency (FSA) has taken action against renowned exchanges, citing non-compliance. Bybit Fintech Limited, KuCoin, MEXC Global, Bitget Limited, and Bitcastle LLC are the targeted exchanges.

The FSA is making the move to ensure that Japan’s cryptocurrency laws are enforced to protect consumer interests and market integrity.

The Issue of Non-Compliance

Priority for the FSA is that these exchanges are operating in Japan without the requisite licensure. This is not simply a bureaucratic formality. It carries with it important operational implications for the exchanges and safety of their customers.

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Any entity offering cryptocurrency trading services in Japan must either register with the national FSA or a local financial bureau, according to Japanese law.

According to the watchdog, KuCoin and other crypto exchanges must go through a registration process of this type. This would guarantee compliance with stringent compliance standards and ensure that these rules are in force.

Among these are thick rules for asset management and operational transparency. According to them, exchanges operating this way continue to evade critical regulatory frameworks designed to shield asset consumers and to guarantee fair trading practices.

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Not only that, it suggests that these platforms might not even separate operational funds from customer funds.

This is a practice that is standard for regulated exchanges. However, the problem is that mixing exchange funds can get very complicated. Especially if the exchange itself is experiencing solvency issues.

Being registered or not for the customer represents a huge increase in risk. But there is a safety net provided by Japanese regulations. Recourse if there is a dispute, the insolvency of a company, or security breaches.

The body states that these unregistered exchanges leave customers outside this protective umbrella. They risk being closed out of funds or without recourse.

On the other hand, there is no regulatory oversight to ensure that these platforms have enough security measures in place. Thus making hacking and theft more likely.

Potential Consequences Kucoin, Bybit, Other Exchanges may Face

Crypto exchanges that do not adhere will face severe sanctions like fines as well as having to cease operations in Japan.

The purpose is to force the exchanges to comply with the regulatory standards or rethink operating in Japan’s market.

The crypto regulator has also been quite stringent. So all of these exchanges including Kucoin and Bybit may move their operations offshore, to a more relaxed regulatory environment.

This could be more than just a trickle of some coin holders exiting Japan. However, it could become a significant event that has broader implications for Japan’s cryptocurrency market.

This includes reducing the liquidity of the market, with the reduced number of available trading platforms for Japanese traders to trade.

In response to these regulatory actions, the FSA strongly encourages Japanese consumers to exercise elaborate due diligence in the registration and compliance status of cryptocurrency exchanges before engaging in any trading activities.

The aim is to warn consumers about platforms that could put them at risk whenever they decide to use them without proper understanding.

FSA also has resources and a list of registered and compliant exchanges to help those who are trading inform themselves and access a preferred exchange.

This is part of a global trend of country governments taking proactive action in the regulation of cryptocurrency exchanges in order to safeguard consumers and re-establish crypto markets.

Japan is one of the leading economies with a large footprint in the technological space and its regulatory approaches could act as best practices for countries with similar problems in the digital assets turf.

However, this could also mean exchanges like Kucoin, Bybit, and others relocating to other markets if they fail to meet the regulation requirements, as previously seen with the US markets during the post-FTX collapse.