Japan raps Coincheck, orders broader checks after US$530 million cryptocurrency theft

TOKYO: Japan’sfinancialregulator said yesterday it would inspect all cryptocurrency exchanges and ordered Coincheck to get its act together after hackers stole US$530 million worth of digital money from its exchange in one of the biggest cyber heists on record.

The theft highlights the vulnerabilities in trading an asset that global policymakers are struggling to regulate and the broader risks for Japan as it aims to leverage the fintech industry to stimulate economic growth.

The Financial Services Agency ( FSA) on Monday ordered improvements to operations at Tokyo-based Coincheck, which on Friday suspended trading in all cryptocurrencies except bitcoin after hackers stole 58 billion yen (US$534 million) of NEM coins, among the most popular digital currencies in the world.

Coincheck said on Sunday it would return about 90 per cent with internal funds, though it has yet to figure out how or when.

The NEM coins were stored in a ‘hot wallet’ instead of the more secure ‘cold wallet’, outside the internet, Coincheck said.

It also does not use an extra layer of security known as a multisignature system.

TheFSAsaiditorderedCoincheck to submit an incident report and measures for preventing a recurrence by Feb 13.

If necessary, it will conduct onsite inspections of other exchanges, an official told a briefing.

The regulator said it has yet to confirm whether Coincheck had sufficient funds for the reimbursement.

Japan started to require cryptocurrencyexchangeoperators to register with the government only in April 2017, allowing pre-existing operators such as Coincheck to continue offering services ahead of formal registration.

The FSA has registered 16 cryptocurrency exchanges so far, and another 16 or so are still awaiting clearance. Coincheck’s application was made in September.

“It’s been long said that cryptocurrencies are a solid system but cryptocurrency exchanges are not,” said Makoto Sakuma, research fellow at NLI Research Institute.

“This incident showed that the problem has not been solved at all. If Coincheck screws up its crisis management, that could deal a blow to the current cryptocurrency fever.”

NEM fell to US$ 0.78 from US$1.01 on Friday but recovered to US$ 0.97 on Monday, according to CoinMarketCap. — Reuters

Coincheck president Koichiro Wada attends a press conference in Tokyo. Japan’s government said on January 29 it would impose administrative measures on virtual currency exchange Coincheck after hackers stole hundreds of millions of dollars in digital...