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Japan’s Financial Services Agency (FSA) has issued a warning to four cryptocurrency exchanges, including Bybit, to cease offering services to Japanese residents.
Singapore-headquartered Bybit, the world’s fourth largest crypto exchange by volume, was found operating without registration in Japan and has been engaging in crypto derivatives trading services that violate the country’s laws and regulations. This is not the first time the exchange has received a warning from Japan’s financial watchdog. In May 2021, the regulator also warned Bybit about its registration procedures.
Bybit is not alone in receiving the FSA’s warning; MEXC Global, Bitforex, and Bitget were also instructed to adhere to Japan’s regulatory standards and stop providing services to Japanese citizens.
Bitget, based in the Seychelles, says it is the world's fifth-biggest derivatives exchange and the world’s largest cryptocurrency derivatives copy trade platform.
Stepping Up Controls
The FSA requires all cryptocurrency exchanges operating in the country to register their business and adhere to strict anti-money laundering (AML) and know-your-customer (KYC) requirements. In addition, exchanges are required to store customer funds in offline wallets to protect against hacks and theft.
In 2017, a law recognizing all cryptocurrencies as legal property was passed, obliging exchanges to comply with additional regulations such as regular financial audits and ensuring proper handling of customer funds. This law was a response to the high-profile collapse of the Mt. Gox exchange in 2014, which had been based in Japan.
Japan further tightened its cryptocurrency regulations in 2018, requiring all exchanges to be licensed by the FSA and imposing stricter AML/KYC requirements. Japan also established the Japan Virtual Currency Exchange Association (JVCEA), the first self-regulatory organization for the cryptocurrency industry, responsible for overseeing exchanges and setting industry standards.
Related: Japan Liberalizes Crypto Industry
While Japan’s cryptocurrency regulations have been praised for their balance between consumer protection and industry growth, there have also been criticisms that the regulations are too strict, making it difficult for smaller exchanges to compete with larger ones and stifling innovation.
Earlier this year, crypto exchange Kraken announced that it is shutting down in Japan, citing efforts to prioritize resources. It previously left the market in 2018, citing the high cost of doing business in the country.
Coinbase also closed shop in the East Asian market in January 2023, after rolling out services there in 2021.
Regardless, the FSA’s recent warning to Bybit and other exchanges serves as a reminder that compliance with Japanese regulatory standards is crucial for operating in the country’s cryptocurrency market.
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