Amidst a sudden drop in cryptocurrency prices at mid-week, Japan’s Financial Services Agency (FSA) reported that they had carried out a surprise inspection of two Japanese exchanges.

Bitcoin dropped 2.25% to USD 5,409.4 by 12:46 PM ET (04:46 GMT), after rising to a one-month high at USD 5,586.3 in the mid-week. The drop-in prices pushed the crypto market cap down to $176.7 billion after some notable gains over the past week.

The two cryptocurrency exchanges receiving an unscheduled visit from the official regulator, Huobi Japan, and Fisco Digital Asset Group, had no warning and provoked shock waves through Japan’s crypto community. Reuters claimed that the reason cited for the spot checks was related to both exchanges alleged inadequate customer protection and anti-money laundering (AML) safeguards. The news agency reported:

“The FSA conducted detailed checks with a view to administrative setup, considering that there are insufficient points in the management systems of the two companies and their efforts to protect customers.”

Prior to the end of 2018, the FSA received a wave of cryptocurrency license applications from exchanges granting the newly formed Japan Virtual Currency Exchange Association (JVCEA) the power to oversee self-regulation within the cryptocurrency industry. The country’s top financial regulator Toshihide Endo has suggested that the industry needs to grow under “appropriate regulation” and as such won’t need government intervention to further enforce curbs on how exchanges operate within the country.

The FSA has kept a close eye on crypto-related businesses and firms since the collapse of the Mt Gox exchange back in 2014. The agency regulated crypto exchanges by introducing a licensing scheme and conducting inspections of the exchanges for their security and compliance with anti-money laundering laws.

 

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