Japan FSA inspects Coincheck over cryptocurrency theft

February 2, 2018

Tokyo- Japan's Financial Services Agency conducted Friday an on-site inspection on virtual currency exchange operator Coincheck Inc. over the loss of massive customer assets due to hacking late last week.

Through the inspection, conducted under the revised payment services law, the financial industry regulator aims to find out whether Coincheck has enough resources to give refunds to the customers who lost their cryptocurrency NEM assets.

This is the first time for the FSA to conduct an inspection on a virtual currency exchange operator.

About 10 FSA officials stepped inside the head office of Coincheck in Tokyo's Shibuya Ward before 8 a.m. Friday (11 p.m. Thursday GMT).

"We launched the inspection with the objective of protecting the users," Financial Services Minister Taro Aso said in a press conference.

On Jan. 26, Coincheck lost almost all NEM assets of some 260,000 customers, worth some 58 billion yen at the time, due to unauthorized access to the company's computer system.

The company has indicated a plan to give refunds in Japanese yen to all affected customers.

As the reimbursements will amount to as much as 46 billion yen, the FSA decided to closely examine Coincheck's financial conditions to find out whether the company is capable of making the payments.

It will also look into the company's system security measures, steps for preventing a recurrence of an asset theft and efforts to clarify the cause of the incident.

Coincheck was criticized for poor security measures to prevent the unauthorized access to its system, including the management of customer accounts in computers connected to the Internet. Usually, customer assets at virtual currency exchanges are managed in offline computers.

On Monday, the FSA issued a business improvement order to Coincheck and told the company to submit by Feb. 13 documents detailing how it plans to help the affected customers and what preventive measures it will implement.

In view of strong public concern over the theft of massive cryptocurrency assets, the FSA decided to conduct the inspection before Coincheck submits reports, officials said.

Virtual currency exchange operators in Japan are required to register with regulatory authorities under a system introduced in April last year.

Coincheck's application is under review, but the company is subject to the same laws and regulations as registered operators because it has been operating the exchange since before the registration system was introduced.

Also on Friday, the FSA said it has ordered, under the revised payment services law, all virtual currency exchange operators in Japan to submit reports on their system security measures. Jiji Press