Japanese regulator conducts first raid on cryptocurrency exchange
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The Financial Services Authority (FSA) has raided the headquarters of Coincheck Inc, which recently suffered a theft of approximately £350m in virtual currency.
In an incident at the end of January, an unidentified attacker stole 523 million virtual coins, NEM, belonging to Coincheck’s customers and worth £350m. Coindesk employees were not alerted to the breach until eight hours after the event.
The FSA imposed a business improvement order on Coincheck after the news of the theft broke. During the subsequent raid – its first on a cryptocurrency exchange – 10 officials collected documents and computers as evidence from the exchange’s offices. The regulator will look into how the exchange is being governed in the wake of the major theft.
According to Taro Aso, Japan’s Minister for Finance, the raid was conducted in order to ensure security for users.
The FSA has demanded that Coincheck issues a report within the next two weeks which details how the incident occurred, how it will support its customers and how it will improve internal controls. Coincheck – one of 32 cryptocurrency exchanges in Japan – had been operating for months with only a provisional licence.
Coindesk has suspended some trading since the incident, and is in the process of investigating it. It will seek to determine whether any hacking was involved.
The company has reassured its 260,000 customers affected – including the management of the all-women cryptocurreny-themed band Virtual Currency Girls – that they will be partially reimbursed following the theft. However, the company has not yet confirmed when it will do so.
Following the theft from Coindesk, the FSA has demanded that Japan’s other cryptocurrency exchanges also report on security risks to their systems.
The theft is likely to deepen concerns over the security of cryptocurrency exchanges and other platforms. In 2014, the Mt. Gox cryptocurrency exchange, which was handling 70 per cent of all bitcoin transactions, lost approximately £325m in bitcoin to hackers – now worth more than £5bn. The major incident bankrupted Mt. Gox.
In August 2016, Bitfinex, the world’s largest bitcoin exchange platform, reported losing £51m of bitcoin belonging to users and in December 2017, NiceHash, a cryptocurrency-mining platform, announced that it had lost £49m in bitcoin.
Due to questions over the security of cryptocurrencies, their association with anonymous criminality and their wildly fluctuating values, governments and other influential bodies around the world are hurrying to decide whether to – and how to – regulate these decentralised digital currencies.
Despite concerns that cryptocurrency trading could be outright banned in South Korea, the country’s Finance Minister has stated that there are no plans to do so.
The White House and IMF are reportedly looking into possible regulations for cryptocurrencies, while Chancellor Philip Hammond told the World Economic Forum recently that it was important to “look at the way we regulate this environment before the amount of outstanding bitcoin becomes large enough to be systematically important in the global economy”.