The Financial Services Agency of Japan has today published a warning under their administrative guidelines. According to a rough translation, the notice says:
“Regarding persons who do not register and carry out the virtual currency exchange business, we made a warning today under the administrative guideline third volume: financial company relationship 16. Virtual currency exchange trader III-1-4 (2) 2, We announce it as follows.
· Industry name etc: Binance
Representative Changpeng Zhao (Chao Chan)
· Location: Hong Kong
· Contents, etc.: Through the Internet, resident of Japan as opponent, temporary.
Things they were doing: currency exchange business.
※ The above is stated based on information on the Internet, “supplier name, etc.” “location or address” may not be the current one.
About persons who do not register and perform virtual currency exchange business (Binance).”
We asked FSA a number of questions, including how much time they plan to give Binance to comply, and whether a registration application would change matters.
They said “we need a little more time to reply due to many inquiries to the relevant section.”
Changpeng Zhao, Binance’s founder, confirmed the notice was received today and said they were closely working with FSA:
“We received a simple letter from JFSA about an hour ago. Our lawyers called JFSA immediately, and will find a solution. Protecting user interests is our top priority,” Zhao said.
The issue appears to be the lack of AML/KYC requirements on Binance. Unlike almost all other prominent exchanges, Binance does not verify identity as far as we are aware.
That could allow for easy selling of stolen coins or other criminal proceeds, although the vast majority of users are just traders attracted by Binance’s fast trading platform.
The easy solution here would probably be to simply enact an AML/KYC procedure, which you’d think will probably soon follow.
They will also need to register with FSA, which then might give them cover regarding other regulators. A Binance representative yesterday said they had filed an application, but FSA did not confirm whether that is the case.
Nor did the Binance representative explain how they expect the application to be granted when the exchange appears to have no AML/KYC procedure.
Anti-money laundering (AML) regulations and Know Your Customer (KYC) procedures have been widely applied in this space since 2013.
Although initially there was resistance, they are now generally accepted because no one wants their stolen coins, or ransomware coins, or worse, physically robbed coins, to be easily tradable.
Regulators in America, therefore, have gone hard against exchanges that do not apply such procedures, with failure to do so being a criminal matter, including in Japan.
As such, we’d think Zhao will put in place such procedures in the coming days, with Japan’s FSA hopefully being accommodating in granting them a license once they comply.