Japan punishes crypto exchanges after hack

Tokyo: Japanese authorities today ordered two cryptocurrency exchanges to suspend operations as part of a clampdown following a massive hack that saw thieves steal hundreds of millions of dollars in virtual currency. The Financial Services Agency (FSA) said in a statement it had ordered FSHO and Bit Station, exchanges based in Yokohama and Nagoya, to temporarily halt their operations for a month from today.

The agency alleged that FSHO “does not have a proper system to monitor trading and has not given training to its employees,” while an employee of Bit Station “diverted digital currency deposited by clients for his personal use.” Authorities also ordered five other exchanges, including Coincheck, to improve their business practices.

Coincheck was already slapped with sanctions in January following the hack. The hack of Coincheck — resulting in the disappearance of NEM cryptocurrency worth $530 million — was one of the largest of its kind, and prompted authorities to search the firm’s office last month. The company has already pledged to reimburse about $400 million to all 260,000 customers who lost their holdings of NEM, then the 10th biggest cryptocurrency by market capitalisation.

But it is unclear how and when the money will be reimbursed. In February, seven plaintiffs — two companies and five individuals — filed a lawsuit against Coincheck. They are seeking the reimbursement of 19.53 million yen ($184,000) in virtual currencies and further compensation for interest lost due to the hack. Thieves syphoned away 523 million units of the cryptocurrency NEM from Coincheck during the January 26 hack, exceeding the $480 million in bitcoin stolen in 2014 from another Japanese exchange, MtGox.

That hack prompted Japan to issue new regulations, requiring exchanges to obtain a licence from the FSA, but Coincheck was allowed to continue operating while the agency was reviewing its application. As many as 10,000 businesses in Japan are thought to accept bitcoin, and bitFlyer — the country’s main bitcoin exchange — saw its user base grow beyond one million in November.