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Japanese financial regulators raided the office of hacked virtual currency exchange Coincheck on Feb. 2.
Cryptocurrency

Regulators raid hacked Tokyo virtual currency exchange

FSA checks if Coincheck has sufficient funds to compensate customers

TOKYO -- Japanese financial regulators on Friday raided the office of virtual currency exchange Coincheck, which lost 58 billion yen ($530 million) worth of digital currency held by its customers when it was hacked last week.

The Financial Services Agency inspected the Tokyo-based exchange operator under the revised Payment Services Act to check whether the funds can be returned to customers and probe security measures.

This is the first time Japanese regulators have raided a virtual currency exchange. "The investigation is being conducted to protect the current users," said Finance Minister Taro Aso on Friday. He also demanded customers receive "appropriate" treatment and ordered all other exchanges to report back on their risk management procedures.

Coincheck was hacked on Jan. 26 and lost nearly all of the NEM digital currency held by 260,000 customers.

The company has said it will return the money to all customers in yen -- a figure estimated at about 46 billion yen.

The FSA is examining the company's finances to establish whether or not it is in a position to fulfill its pledge. They are also checking that adequate security measures have been put in place to prevent another attack, as well as seeking to determine how the incident occurred.

Coincheck's clients' assets were stored and managed on a system that was constantly connected to the internet -- a practice that is deemed insecure.

On Jan. 29, the FSA ordered Coincheck to take appropriate compensation measures for its customers and set up a risk management system to prevent a recurrence.

Coincheck was ordered to submit a written report to the watchdog by Feb. 13. However, given the high profile nature of the incident, the FSA decided to step in and conduct an investigation before the submission of the report.

A registration system for cryptocurrency exchanges was introduced in April 2017. Coincheck is currently undergoing the checks required for registration. The exchange has been in operation since before the system's introduction and is required to follow the same rules as exchanges that are registered.

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