Japan’s Financial Services Agency has decided to approve Coincheck’s cryptocurrency exchange license, Nikkei has learned. An announcement will come by the end of the year, closing a tumultuous chapter in Coincheck’s history that began back in January when 58 billion yen ($511 million) worth of clients’ cryptocurrency holdings was stolen.
At the time of the hack, Coincheck was Japan’s largest cryptocurrency exchange. The theft forced Coincheck to halt trading, leaving its clients with no sell option as the market went into a long tailspin.
The FSA judged that the company improved customer protection and other systems after being purchased by online brokerage Monex Group in April.
A year earlier, in April 2017, Japan revised its payment services law to guard clients and prevent money laundering. Included in the revision was a licensing system for cryptocurrency exchanges. Coincheck had already been operating at that time and was allowed to continue doing business on a provisional basis as it awaited a decision on its license.
After Coincheck was hacked, the FSA twice ordered the exchange to improve its business operations; the agency found it was unprepared in regard to customer protection and money laundering.
Now a subsidiary of Monex Group, Coincheck has taken measures to revise how it selects what cryptocurrencies it will handle. After considering the cryptocurrency market’s fall, Coincheck compensated its clients to the tune of 46 billion yen.
The FSA’s decision to grant a license to Coincheck is expected to trigger the resumption of the agency’s approval process. Nearly 200 companies are said to be waiting for licenses, but only about 50 are believed to have hammered out concrete plans.
In deciding whether to grant licenses, the FSA will scrutinize business plans, anti-hacking measures and the effectiveness of shields put up against other misconduct. Exchanges applying for approval will have to answer a 400-item questionnaire.
The FSA’s strict screening of Coincheck was also meant as a message to other exchanges that they should voluntarily exit the market if they are unable to meet high standards.
The market that could quickly cover a 58 billion yen hack like Coincheck’s no longer exists. The price of bitcoin has sunk to a fifth of its peak, for instance, and earnings at virtual currency companies around the world are suffering.
Speculative activities will also be curbed once exchanges adopt the Japan Virtual Currency Exchange Association’s self-imposed rules. Leveraged transactions for currencies will be capped at four times traders’ deposits, compared with 25 times now.
As new players prepare to enter the market, competition will heat up, weeding out exchanges and reorganizing the industry.