Japan’s Financial Services Authority (FSA) plans to strengthen internal audit processes at financial institutions, including crypto exchanges. According to a recent statement, the agency aims to address gaps in the sector and align with global standards in regulatory compliance.
The FSA stated that a roundtable discussion would be used to explore improving internal audits in Japan’s financial sector.
Key participants include representatives from the Japan Cryptocurrency Exchange Association and other financial industry groups, including the Japan Financial Services Association, Japan Payment Services Association and the Japanese Bankers Association.
This initiative follows a recent FSA monitoring report highlighting weak audit and control practices at these companies. The FSA plans to revise its ‘Current Situation and Issues’ guidance to include enhanced control measures that reflect international regulatory trends.
Crackdown on unregistered exchanges
The FSA’s efforts follow recent warning letters to five crypto exchanges accused of operating without proper registration. These exchanges include Bitcastle LLC, Bitget Limited, Bybit Fintech Limited, KuCoin and MEXC Global.
In Japan, exchanges that serve locals are required to register with the FSA or a financial agency. The financial regulator stated that all unregistered exchanges operate outside its supervision, raising concerns about customer asset segregation and platform security.
The FSA warned that users of unregistered exchanges may not have access to asset protection or compensation under Japanese law. This regulatory gap can leave customers vulnerable during disputes or unforeseen incidents.
Cautious approach
These developments suggest that Japan continues to take a cautious approach to crypto and focus on consumer protection.
This week, Japanese Prime Minister Shigeru Ishiba revealed that the Asian country will not integrate Bitcoin into its reserves, despite growing global adoption. According to him, digital assets such as Bitcoin conflict with the objectives of the country’s financial reserve strategy due to their high volatility.
Japan has reportedly maintained a strict stance on crypto-related exchange-traded funds (ETFs), even as these products achieve unprecedented success in markets such as the United States.
Despite this cautious stance, the country has positioned itself as a digital asset-friendly nation. Recent efforts include a landmark economic stimulus package with reforms to the country’s crypto tax laws.