TOKYO -- Japan's Financial Services Agency is set to take administrative action on Monday against hacked cryptocurrency exchange Coincheck, following the theft of some 58 billion yen ($534 million) worth of NEM digital money.
The watchdog is to order the exchange to submit a plan for improving its operations, officials said.
The FSA suspects that a lack of proper security measures allowed hackers to make off with a record haul of virtual currency on Friday. The agency is expected to order Coincheck to strengthen its safeguards to prevent a recurrence.
Coincheck will refund all of the roughly 260,000 NEM holders in yen, the company said in a statement on Sunday. Chief Operating Officer Yusuke Otsuka told reporters that customers will be reimbursed out of the company's cash holdings. Otsuka said no date has been set for the payments or for a restart of transactions on the exchange.
The FSA has sought information from the exchange operator on why it had not put recommended measures in place.
"We have to take into account the major impact on society," a senior FSA official said of the agency's response to the incident.
The unauthorized access to Coincheck's system appears to have cleaned out virtually all of customers' NEM holdings. This marks the biggest loss of cryptocurrency since the 2014 breach at Tokyo-based exchange Mt. Gox, when bitcoin worth some 47 billion yen at the time vanished.
Meanwhile, in the wake of the latest hack, two trade groups in Japan's booming cryptocurrency sector have decided to merge into a self-regulatory body -- a step they had hesitated to take before.
The Japan Blockchain Association -- which includes bitFlyer, the nation's biggest cryptocurrency exchange -- and the Japan Cryptocurrency Business Association still have to hammer out the details of the merger.
The FSA had been urging them to join forces, but they had been unable to agree on a way forward until now. The new, broader organization could make it easier to set common rules for protecting investors, such as managing customer assets separately from the exchanges' capital. Having uniform disclosure standards would also aid customers in choosing an exchange.
Cryptocurrencies are increasing in number and spawning offshoots at a pace that tests regulators' ability to keep up. Japan has taken a relatively light-touch approach to regulating cryptocurrency activity compared with China, which has clamped down after an early surge in trading.
Nikkei Inc. group company QUICK holds an equity stake in bitFlyer.