According to a report by financial news outlet Nikkei, Japan’s Financial Services Agency (FSA) has ordered the closure of the popular Binance exchange because it is operating in the country illegally due to its non-registration with the authorities under the Settlement Law of 2005.
Binance claims to be one of the world’s largest crypto exchanges with six million clients, many of whom are in Japan, and has been growing rapidly because of its low commission charges and solid infrastructure.
The Settlement Law’s “deemed trader” provision states that only those entities applying for or already registered with the registrar can trade in Japan. There are “dozens” of unregistered exchanges operating in the country, Nikkei reports.
The Japanese government introduced a licensing system last year and 16 exchanges are currently listed.
[updated 13:52 UTC – Binance denies that it is being shuttered in Japan]
Nikkei showed irresponsible journalism. We are in constructive dialogs with Japan FSA, and have not received any mandates. It does not make sense for JFSA to tell a newspaper before telling us, while we have an active dialog going on with them.
— CZ 🔶 Binance (@cz_binance) March 22, 2018
Sources say the FSA is acting now because of concerns that Japanese traders are at risk of large financial losses related to poor security on the exchange.
According to Nikkei, “If the warning does not stop the business, the Financial Services Agency will charge the police authorities with a suspected violation of the revised fund settlement law, and the police will investigate. After warning, the focus will be on how to return to Japanese customers.” [Google Translates]
The FSA is conducting on-site inspections of crypto exchanges in the country and this latest move is part of that process.
Following the Coincheck hack in February, the FSA has targeted seven exchanges for punishment, ordering them to improve their business processes. Two exchanges were force to close for a month. Coincheck is a government-licensed exchange.
The market has reacted badly to the news, which comes days after the G20 nations decided against taking action on cryptocurrencies, with bitcoin down 3.6%, according to research site cryptocompare, at $8,767.
The unexpectedly positive news from the G20 meeting in Argentina led to a relief rally but the news from Japan is a reminder that even if there is to be no coordinated international action, that does not mean each individual country will not enforce more rigorously its existed rules and regulations or introduced new ones.
Binance, which has its own coin called BNB, recently announced that it was setting up a blockchain on which it plans to build a decentralised exchange.
In January this year Binance at one stage was adding “a couple of million” new customers every week, according to chief executive and founder Zhao Changpeng in an interview with Bloomberg TV.
In the same interview Zhao said the company had set up servers in a number of locations around the world to make it more resilient to regulatory action by individual countries. He added that750 the exchange was growing very quickly in Japan, Korea and the US.
