Coincheck Saga Continues: Japan to Punish Exchange for Massive NEM Theft
Japanese regulators are planning to hand down administrative punishment on digital currency exchange Coincheck for failing to secure client funds in the theft of 500 million NEM tokens on Friday. The measures will be carried out on Monday as part of ongoing efforts to bolster safety in Japan’s burgeoning cryptocurrency market.
FSA Steps In
The Financial Services Agency (FSA) is expected to issue a business improvement order to Coincheck later in the day, according to Chief Cabinet Secretary Yoshihide Suga. A business improvement order is generally administered under the Financial Instruments and Exchange Act, which is the main source of securities law in the country.
On Friday, the Tokyo-based Coincheck suspended trading in all digital currencies except bitcoin after reporting the theft of hundreds of million of NEM coins. The total monetary loss was roughly $423 million, making it the costliest cyber heist in cryptocurrency history.
A similar attack in 2014 succeeded in wiping out Mt Gox, which at the time was the world’s biggest cryptocurrency exchange. However, analysts have been quick to caution investors that the Coincheck attack pales in comparison to the Mt Gox debacle because the market has expanded manifold over the last few years. Case in point: the value of NEM and the broader crypto market have rebounded sharply from early losses on Friday. At last check, NEM was trading around 98 US cents, down from earlier highs above the $1.00 mark.
To its credit, Coincheck has quickly stepped up efforts to compensate the 260,000 NEM holders who were exposed to the theft. On Saturday, the exchange announced it would compensate each holder of the cryptocurrency at a rate of 88.549 yen (81 cents). That figure was based on trading activity between Friday and Saturday.
The exchange also admitted to major security flaws in its setup, including failing to implement multi-signature technology and storing investors’ tokens in a hot wallet connected to the internet.
Coincheck has yet to announce whether its investigation into the attack has yielded any information about the perpetrators. However, it has announced plans to register with the FSA, something it had neglected to do prior to the attack.
Unlike other jurisdictions, Japan has favorable laws governing cryptocurrencies. The government’s recognition of cryptocurrencies as a form of payment was one of the market’s major catalysts in 2017.
Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
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