Coincheck may be slapped with business improvement order

January 28, 2018

Tokyo- Japan's Financial Services Agency is looking at issuing a business improvement order soon to virtual currency exchange operator Coincheck Inc. over the loss of massive customer assets due to hacking late last week, informed sources said Sunday.

The order would be issued under the revised law on fund settlement.

Later on Sunday, Coincheck plans to make reports to the FSA on the damage from unauthorized access to its computer system and its policy of compensation to customers.

The FSA could order the Tokyo-based company to suspend some of its business operations, according to the sources.

On early Sunday, Coincheck said it plans to refund about 46.3 billion yen to all of some 260,000 customers who lost their cryptocurrency NEM assets managed in the exchange. The value of the stolen customer assets has fallen from the initially estimated 58 billion yen due to drops in the market price of NEM.

The FSA believes that inadequate security precaution by Coincheck is blamed for the unauthorized access to its system and the loss of virtual currency assets.

The Metropolitan Police Department has started gathering information following a request for help from Coincheck. The police are expected to analyze related computer communication logs and question officials about the company's system for the administration of customer assets.

Coincheck said it aims to restart its services after strengthening security measures and determining the cause of the asset loss.

It has yet to fix the details of the reimbursement, including the timing and specific procedures. The company said it plans to use its own funds to make the reimbursement, but how it will finance the refund remains unclear.

According to Coincheck, customer assets totaling 523 million NEM disappeared on Friday. The assets were assessed at some 58 billion yen, on the basis of the going market rate of some 110 yen per NEM at the time.

With the market price having fallen since, the company decided to make the reimbursement at the prevailing rate of 88.549 yen per NEM.

The exchange operator's system was hacked in the small hours of Friday, resulting in the loss of almost all customer assets in NEM. The company has stopped withdrawals of customer assets in all virtual currencies in the exchange and trading in all currencies other than bitcoin.

Virtual currency exchange operators in Japan are required to register with regulatory authorities under the revised law on fund settlement, which came into force in April last year.

Coincheck's application is under review. Until the FSA draws a conclusion, the company is allowed to broker currency trading as it has been in business since before the revised law took effect. Jiji Press