LBank in hot water for breaking Japan’s financial rules

LBank received a stern warning from Japan’s financial watchdog for allegedly trading without proper registration.

According to Coinpost, Japan’s Financial Services Agency (FSA) emphasized that the cryptocurrency exchange was operating with an “unknown address” and “an unknown agent,” raising significant concerns about transparency and accountability.

According to CoinPost, the Japanese Financial Services Agency issued a warning to offshore exchange LBank Exchange on June 14, stating that it was not registered to provide cryptocurrency transactions. It also warned Bybit, MEXC, Bitget and Bitforex in March last year.

— Wu Blockchain (@WuBlockchain) June 15, 2024

The exchange reportedly facilitated cryptocurrency transactions with Japanese residents over the internet, which was in direct violation of Japan’s regulatory framework.

LBank is a centralized cryptocurrency exchange founded in 2015 and registered in the British Virgin Islands. The platform supports 671 coins and 814 trading pairs. Data from CoinGecko shows that LBank currently ranks 55th in terms of 24-hour spot trading volume.

The warning to the crypto exchange comes just weeks after it hosted a high-profile web3 investor meetup in Dubai, highlighting the disconnect between global outreach efforts and regulatory compliance.

Historical warnings

This latest warning to LBank is not the first time the FSA has pointed an accusatory finger at crypto exchanges operating in the country. In March 2023, the agency issued similar warnings to four other companies: Bybit, MEXC, Bitget and Bitforex. These exchanges were also found to offer crypto trading services to Japanese residents without registration.

Market data from CoinGecko shows that Bitget and Bybit are among the top exchanges globally, ranking 3rd and 4th, respectively, based on the number of visitors they received in the last 30 days.

Ranking of crypto exchanges by monthly visits | Source: CoinGecko

Bybit is particularly popular for derivatives trading and has a significant user base in Japan. Despite their popularity, these platforms remain inaccessible to Japanese investors due to regulatory restrictions.

Comparison of regulatory environments

Japan and the US offer contrasting approaches to crypto regulation. Japan recognizes cryptocurrencies as legal property under the Payment Services Act (PSA).

However, cryptocurrency exchanges must register with the FSA and comply with anti-money laundering (AML) and combating the financing of terrorism (CFT) rules.

Additionally, while most cryptocurrencies are considered assets in Japan, initial coin offering (ICO) tokens are classified as type 2 securities regulated under the Financial Instruments and Exchange Act (FIEA).

In contrast, the US regulatory framework is more fragmented and evolving. In 2022, President Joe Biden’s administration took significant steps by initiating an executive order to assess the risks and benefits of cryptocurrencies, leading to a roadmap encouraging increased regulatory enforcement.

But recently the White House vetoed a bill from the House of Representatives that would have repealed a controversial bulletin from the U.S. Securities and Exchange Commission (SEC); Many lawmakers thought this could be a major obstacle to companies offering custody services for crypto assets. .

The SEC is proactively treating many cryptocurrencies as securities and taking legal action against non-compliant crypto businesses. One notable development was a 2023 court decision that determined that Ripple sold XRP as a security only when sold to institutions and not on exchanges; This represented a subtle gain for the crypto sector.

Both Japan and the United States are actively developing their regulatory policies; While Japan has pioneered a structured and clear approach, the United States is navigating ongoing legal and regulatory debates.