LBank, a centralized cryptocurrency exchange, has come under fire from Japan’s Financial Services Agency (FSA) for allegedly conducting transactions without proper registration. This breach has sparked significant concern over the exchange’s transparency and accountability.
Regulatory Violations
According to a report by Coinpost, the FSA identified that LBank was operating with an “unknown address” and “unknown representative.” The exchange allegedly facilitated cryptocurrency transactions with Japanese residents via the internet, directly violating Japan’s stringent regulatory framework.
LBank, established in 2015 and registered in the British Virgin Islands, supports 671 coins and 814 trading pairs. CoinGecko data ranks LBank at #55 in terms of 24-hour spot trading volume. Despite its global outreach, including hosting a high-profile web3 investor meetup in Dubai recently, the exchange has not adhered to Japan’s regulatory requirements.
Historical Context
This isn’t the first instance of the FSA clamping down on unregistered crypto exchanges. In March 2023, similar warnings were issued to Bybit, MEXC, Bitget, and Bitforex. These platforms were also found offering crypto trading services to Japanese residents without the necessary registration.
CoinGecko data shows that Bitget and Bybit are among the top exchanges globally, ranking #3 and #4 respectively in terms of visitor numbers over the last 30 days. Bybit, popular for derivatives trading, enjoys a significant user base in Japan, yet remains off-limits to Japanese traders due to regulatory non-compliance.
Regulatory Landscape: Japan vs. U.S.
Japan’s regulatory environment under the Payment Services Act (PSA) is well-structured, recognizing cryptocurrencies as legal property. Crypto exchanges must register with the FSA and comply with anti-money laundering (AML) and counter-financing of terrorism (CFT) guidelines. Cryptocurrencies are treated as assets, and initial coin offering (ICO) tokens are classified as type 2 securities under the Financial Instruments and Exchange Act (FIEA).
Conversely, the U.S. regulatory framework is more fragmented and still evolving. In 2022, President Joe Biden’s administration initiated an executive order to assess the risks and benefits of cryptocurrencies, which led to a roadmap encouraging increased regulatory enforcement. Despite this, a recent veto by the White House blocked a bill from the House of Representatives aimed at repealing a contentious SEC bulletin, seen by many as an obstacle for companies offering custodial services for crypto assets.
The SEC has been proactive, categorizing many cryptocurrencies as securities and pursuing legal actions against non-compliant crypto businesses. A significant development was the 2023 court ruling that classified Ripple’s sale of XRP as securities only when sold to institutions, not on exchanges—a nuanced win for the crypto sector.
Conclusion
As Japan and the U.S. continue to refine their regulatory policies, Japan leads with a structured and clear-cut approach, while the U.S. navigates ongoing legal and regulatory debates. LBank’s case underscores the importance of regulatory compliance in the global cryptocurrency market, highlighting the challenges exchanges face in adhering to diverse national regulations.
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