Japan Cracks Down on Crypto Exchanges Over Stolen Fund Flows

Japan's Financial Services Agency (FSA) and National Police Agency have issued a joint directive to the country's licensed crypto exchanges, demanding tighter withdrawal restrictions and more robust monitoring of suspicious fund flows. The move comes as Japan recorded 19,038 fraud cases in 2023, with total damages reaching ¥45.26 billion.

The FSA and NPA are targeting two main areas: withdrawal restrictions and illicit fund monitoring. Exchanges must tighten the conditions under which users can withdraw funds, particularly for accounts showing behavioral patterns consistent with receiving stolen money. This includes stricter conditions for withdrawing large sums of money.

The joint directive is an escalation of the FSA's February 2024 guidance on unlawful transfers into crypto exchange accounts. Japan has between 27 and 30 registered Crypto-Asset Exchange Service Providers, which already operate under strict rules covering asset segregation, cybersecurity standards, and anti-money laundering compliance. The new directive layers additional fraud prevention expectations on top of this framework.