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Clampdown on cryptocurrency in Japan after £379m cyber heist

Japan’s financial regulator is clamping down on cryptocurrency exchanges in the aftermath of one of the biggest cyber heists on record.

The Financial Services Agency (FSA) said on Monday it would inspect all exchanges and put pressure on Coincheck – a cryptocurrency wallet and exchange service – after digital money worth $534m (£379m) was stolen by hackers from its exchange.

The theft highlights the vulnerabilities in trading an asset that global policymakers are struggling to regulate.

It also emphasises the broader risks for Japan as it aims to leverage the financial technology industry to help drive economic growth.

The FSA ordered improvements to operations at Coincheck, based in Tokyo, which suspended trading in all cryptocurrencies on Friday except bitcoin after hackers stole 58bn yen (£379m) of NEM coins.

NEM coins are among the most popular digital currencies in the world.

In this picture taken on late January 26, 2018, Coincheck president Koichiro Wada (L) bows in apology at the beginning of a press conference in Tokyo. Japan's government said on January 29 it would impose administrative measures on virtual currency exchange Coincheck after hackers stole hundreds of millions of dollars in digital assets from the Tokyo-based firm. / AFP PHOTO / JIJI PRESS / - / Japan OUT (Photo credit should read -/AFP/Getty Images)
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Coincheck president Koichiro Wada (L) bows in apology at the beginning of a news conference in Tokyo

Coincheck said on Sunday it would return about 90% with internal funds, but the FSA says it is yet to confirm whether the company has sufficient funds for the reimbursement.

The NEM coins were stored in an internet-connected hot wallet instead of a cold wallet, which is more secure.

Hackers cannot steal digital assets that are not connected to the internet.

Hot wallets also do not use an extra layer of security known as a multi-signature system.

The FSA says it has ordered Coincheck to submit a report on the hack and measures for preventing it happening again by 13 February.

World leaders meeting in Davos last week issued fresh warnings about the dangers of cryptocurrencies, with US Treasury Secretary Steven Mnuchin relating Washington’s concern about the money being used for illicit activity.

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