TOKYO -- Japan's Financial Services Agency issued business improvement orders on Friday to six virtual currency exchanges for lax oversight against crime, prompting a leading platform to stop accepting new customers in one of the world's most active crypto markets.
Quoine, bitFlyer, Bitbank, BITPoint Japan and BtcBox -- all based in Tokyo -- were told to improve safeguards. Tech Bureau in Osaka also received a reprimand, its second since March.
In response to the order, bitFlyer said on Friday it would stop accepting new customers to focus on bolstering its internal controls. Nikkei Inc. group company QUICK holds an equity stake in bitFlyer.
The six exchanges are registered with the FSA, a process that involves rigorous inspections by the agency. The unusually large number reprimanded on Friday -- about 40% of the 16 registered trading platforms -- reflects the regulator's concern that even approved exchanges have grown so fast that their safeguards against abuse have failed to keep pace.
The FSA has conducted onsite inspections of both registered crypto exchanges and operators with pending applications since the theft of about 58 billion yen ($527 million) in NEM virtual currency from the Tokyo-based exchange Coincheck in January.
In Friday's action, the FSA said bitFlyer users could list post office boxes as their personal addresses during the sign-up process, and that the cryptocurrency exchange gave false or misleading explanations during the inspections leading up to its registration.
Some exchanges let transactions suspected of involving money laundering slip through, or they failed to maintain lists of people associated with organized crime to check against their users, according to the FSA.
Crypto exchanges "lack awareness of their role as financial companies despite handling customers' assets," said Masashi Nakajima, an economist at Japan's Reitaku University who studies cryptocurrency.
But the FSA "has room for improvement as well," one official acknowledged, citing a need to "make our inspections and oversight responsive to changes in the cryptocurrency environment."
Under increased scrutiny since the Coincheck heist, a number of crypto exchange operators have said they will pull out of Japan. Some with pending applications have decided not to seek to register with the FSA, given the increased compliance burden.
In Asia, cryptocurrency trading has flourished in Japan and South Korea, where it has been more lightly regulated than in China.
Trading on Japanese virtual currency exchanges reached about 69 trillion yen in fiscal 2017, up 20-fold from a year earlier, with exchange customers growing to around 3.6 million, the Japan Cryptocurrency Business Association says.