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Currencies

Japan quizzes virtual currency exchanges on user protections

Marketplaces for bitcoin and the like face new regulations to gain legal status

Japanese regulators are stepping up oversight of brokers and exchanges for bitcoin and other digital currencies.

TOKYO -- Japan's financial watchdog will probe whether exchanges for virtual currencies such as bitcoin provide adequate protection for users, ensuring the companies are up to scratch before they can register to operate with the government.

The Financial Services Agency will question exchanges on whether and how they inform users about topics such as the risk of price fluctuations. The agency then will examine matters including how the exchange manages its digital holdings separately from customer funds and how it conducts maintenance and inspections of its trading systems. If all is found to be in order, the company can proceed to formal registration proceedings.

Fund settlement laws that took effect in April require virtual currency brokers and exchanges to be registered. The FSA is undertaking preliminary inspections to ensure applicants comply with those laws, and disqualify those that fall short.

Around 10 companies appear to be on the docket for inspections, including Tokyo exchanges bitFlyer and Coincheck. Businesses operating an exchange prior to April may put off registering until the end of September. No company was registered as of the end of June.

In 2014, a massive loss of virtual funds at Tokyo-based exchange Mt. Gox shook the bitcoin world. At the time, the legal position of digital currency exchanges was undefined, and no framework existed to protect users. The FSA devised regulations based in part on that incident.

(Nikkei)

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