As part of Japan’s amended ‘Payment Services Act’ which will enter into force on April 1, the ‘Act on Prevention of Transfer of Criminal Proceeds’ has also been revised. This act requires Japanese bitcoin exchanges to implement a stricter Know Your Customer (KYC) process.
Japanese Exchanges Affected
The amended Payment Services Act has long been discussed in Japan, but the date which it would enter into force was not previously set. However, last Friday, the Japanese Financial Services Agency (FSA) finally announced that the date for which this act will become law is April 1.
This amended act also revises the Act on Prevention of Transfer of Criminal Proceeds which requires bitcoin exchanges to implement stricter KYC policies than how they have been doing. They must start checking the identities of customers who open accounts, keep transaction records, and notify authorities when a suspicious transaction is recognized.
Major bitcoin exchanges in the country are now responding to this law. Both Coincheck and Zaif exchanges posted on their websites a new set of rules regarding KYC on Friday. Coincheck states that:
To comply with Act on Prevention of Transfer of Criminal Proceeds, Coincheck is conducting KYC (Know your customer) process.
According to Coinhills, Coincheck is the third-largest bitcoin exchange in Japan with a 24-hour trading volume of about 22,300 BTC at press time, whereas Zaif is the fourth largest with around 14,400 BTC trading volume in the same time period.
The exchange with the most trading volume globally is Bitflyer, with over 98,000 BTC traded within 24 hours. Its trading volume is over four times that of the second-largest exchange, the Singapore-based Quoine.
The Japanese yen has gained the rank of the world’s most traded currency for bitcoin, occupying 44.5 percent of the global bitcoin trading volume. This is largely a result from China’s fall from supremacy in the area and Japanese exchanges actively pushing their now-common zero-fee trading practice.
Revising KYC Procedures
On its website, Zaif details its new KYC procedure and encourages its customers to open an account before the new law go into effect on April 1, citing that account opening will be more difficult after that time.
The exchange explains that after April 1, three sets of user identification will be required to open an account at the exchange. It explains that (translated from Japanese):
- Customers must provide answers to a set of questions such as name, address, date of birth, profession, and trading purpose.
- Customers must upload identification documents, and
- Customers must verify their identity by mail.
For postal mail verification, the exchange will send a postcard to each customer’s registered address by “simple registered mail” as required by the law, Zaif explains. Customers will then need to enter their identification code as described in the postcard. Zaif reiterates that it cannot open an account for a customer unless all three requirements are satisfied, adding that customers who have not confirmed one of the three requirements “may not be able to use Zaif in part”.
Coincheck has a similar process, as outlined in the steps below which are posted on its website.
Meanwhile, Bitflyer claims to have already been carrying out strict identity verification checks “to a level exceeding that of ordinary financial institutions”, according to its website. For daily transactions of more than ¥50,000, the company verifies customers’ bank account information, as well as requiring customers “to submit an ID selfie (photo-affixed official identity verification documentation and selfie picture) as well as a passport/driving license copy”.
However, the exchange still has to modify its KYC process to comply with the new rules. In an interview with Bitcoin.com last month, Bitflyer founder and CEO Yuzo Kano said: “we have already been audited and prepared the necessary internal organisation changes. We will need to change the KYC process to fit the new rule”.
What do you think of Japanese exchanges’ new KYC procedures? Let us know in the comments section below.
Images courtesy of Shutterstock, Coincheck, Zaif, and Bitflyer
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