Japan's FSA and police ordered crypto exchanges to curb withdrawals and flag stolen funds after the crypto scam reports hit 19,344 in 2023 alone.
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Japan's Financial Services Agency (FSA) and National Police Agency issued a joint directive to the country's licensed crypto exchanges, ordering stricter withdrawal conditions and closer monitoring of suspicious fund flows.
The directive follows a year of heavy fraud losses. Japan recorded 19,038 fraud cases in 2023, with total damages reaching ¥45.26 billion. Suspicious transaction reports tied to crypto assets rose to 19,344 cases that year, up sharply from earlier periods.
Nearly half of all proceeds stolen through online bank fraud, about ¥8.73 billion in a single reported period, ended up in crypto exchange accounts. Scammers steal from bank accounts, then route the money through crypto to obscure the trail.
Exchanges must now tighten the conditions under which users can withdraw funds, especially for accounts that match behavioral patterns consistent with receiving stolen money.
The FSA first flagged unlawful transfers into crypto exchange accounts in February 2024 guidance. The National Police Agency has now signed on to the same directive.
Japan has between 27 and 30 registered Crypto-Asset Exchange Service Providers. Those exchanges already operate under strict rules on asset segregation and anti-money laundering. The new directive adds fraud-prevention duties on top of those requirements.
Japan adopted its exchange licensing system years before most Western countries, following the 2014 Mt. Gox collapse and the 2018 Coincheck hack. Japan is reportedly preparing to apply standards closer to those governing securities firms, with major changes expected in 2025 and 2026.
For traders on Japanese platforms, the near-term effect is more friction at withdrawal. Exchanges can comply by adding verification steps and cooling-off periods, plus more attentive monitoring of unusual transfers. The trade-off is convenience for protection against a fraud channel that drained billions of yen into crypto.
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