Japan Cracks Down on Social Media Scams with New Crypto Exchange Regulations

Japan's Financial Services Agency and National Police Agency have joined forces to crack down on social media investment scams and pig-butchering schemes in the cryptocurrency space. On August 6, they sent a letter to the Japan Cryptocurrency Exchange Association, urging all exchanges to strengthen preventive measures against these types of scams.

The new regulations require exchanges to implement a cooling-off period for withdrawals, pre-register withdrawal addresses, and establish a 24-hour suspicious transaction freezing mechanism. This means that exchanges must restrict external withdrawals for a certain period after customers deposit fiat currency or purchase cryptocurrencies. Withdrawal addresses will also be subject to a strict pre-registration system.

Exchanges are also required to proactively verify the transaction purposes and backgrounds of customers who conduct large or high-frequency withdrawals shortly after restrictions are lifted. Additionally, exchanges must set tiered withdrawal limits based on the customer's true attributes and holdings.

The regulators emphasize that exchanges must establish a 24-hour response mechanism covering nights and holidays to ensure that they can cut off the flow of funds at any time upon discovering special scam proceeds or abnormal withdrawals.