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BY Fintan Ng - September 25, 2018

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Asahi Shimbun criticises the FSA and Tech Bureau over latest crypto hack

Asahi Shimbun op-ed says FSA and Tech Bureau lapses highlights need to update regulatory framework for cryptos
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The Asahi Shimbun, a Japanese newspaper, published an op-ed dated Sept 24 criticising Tech Bureau Corp, the owner of the hacked Zaif crypto exchange and Japan’s financial watchdog, the Financial Services Agency (FSA), for various lapses.

Zaif lost almost US$60mil in a hack when unauthorised outflow of funds was detected days in mid-September.

The newspaper says that while new technologies often encountered failures, a succession of blunders cannot be overlooked, especially when involving large sums of money that have been allowed to vanish into the darkness.

Last week, a report from Japan’s National Police Agency revealed that the country saw US$540mil worth of cryptos stolen in the first-half of the year while the number of reported incidents in the first six months tripled compared to the same period in 2017.

It noted that Tech Bureau was handed a business improvement order in March by the FSA, which pointed out the frequent system failures, illegal payments and illegal transactions impacting going through the Zaif exchange.

Tech Bureau was again ordered in June to make improvements to its operations, one of six companies this time to be so ordered.

The FSA cited problems in the company’s organizational setup, including in business management, compliance, measures against money laundering and segregation of customer assets.

“The latest theft came on top of all that. We cannot but question if Tech Bureau is qualified to be a registered operator, although the company is, in a sense, the victim of hacking,” the newspaper says.

It says while Tech Bureau executives will be stepping down and that stolen customer assets will be repaid, the company “has yet to fulfil its accountability in the first place”.

To-date, Asahi Shimbun says the company has not even held a news conference and has not explained in detail how the theft occurred while no information on management and financial status have been disclosed.

The newspaper also criticised the FSA for not taking seriously that the improvement orders that were issued were not effective in preventing the theft.

It noted that the Zaif hack was not the first, with the Coincheck hack in January resulting in US$530mil worth of cryptos stolen.

The FSA, which set up a panel after the Coincheck hack to discuss how best to deal with firms operating exchanges, has stepped up monitoring and even have unannounced site visits to the offices of exchanges.

The newspaper says that a majority in the panel believe that the existing institutional framework is inadequate in light of the current state of things, with members calling for a review, including from the viewpoint of investor protection.

“The panel should rush to work out details so effective regulations can be promptly realized,” it says, adding that the technology has entered a phase where appropriate action should be taken, not the least to prevent the potential from being ruined.

Image courtesy of The Asahi Shimbun website.

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