Katherine Ross

The New York Department of Financial Services (NYDFS) fined bitFlyer USA $1.2 million, alleging that the crypto exchange’s cybersecurity program had “multiple deficiencies” following an investigation. 



The NYDFS said, “many of bitFlyer USA’s written policies and procedures were English translations of Japanese originals; some portions were poorly translated, while others (such as graphs) were not translated at all.”



The exchange also did not get board approval for policies, or conduct annual reviews.



BitFlyer cooperated with the investigation and the NYDFS <a href="https://www.dfs.ny.gov/system/files/documents/2023/05/ea20230502_bitflyer_usa_inc.pdf">said</a> that it “credits” the company for working to bring the cybersecurity programs up to standard.&nbsp;



BitFlyer proposed a plan that would bring the company into compliance with the NYDFS’s requirements and will be compliant under this plan by the end of 2023.&nbsp;



The exchange will also be required to check in with the NYDFS quarterly to report its progress.



BitFlyer isn’t the first company that faced a fine for not meeting compliance requirements. BitPay, a crypto payments provider, <a href="https://blockworks.co/news/bitpay-fine-new-york-regulator">settled with the NYDFS</a> back in March.&nbsp;



In January, <a href="https://blockworks.co/news/coinbases-100m-settlement-largest-since-blockfi">Coinbase and the NYDFS</a> reached a $100 million settlement after the department found that it violated anti-money laundering laws back in 2018 and 2019.&nbsp;



In August of last year, <a href="https://www.dfs.ny.gov/reports_and_publications/press_releases/pr202208021">Robinhood</a> was hit with a $30 million penalty for cybersecurity, anti-money laundering, and consumer protection violations.&nbsp;



BitFlyer did not immediately respond to a request for comment.



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BitFlyer

BitFlyer Fined $1.2M by NYDFS for Failing to Meet Cybersecurity Requirements

Sebastian Sinclair

The co-founder of Japan’s largest crypto exchange <a href="https://blockworks.co/tag/bitflyer">BitFlyer</a> plans to restore himself as CEO and lead the startup to an initial public offering at an unspecified date.



The move comes in response to a dispute with current management and other shareholders over control of the company, Bloomberg <a href="https://www.bloomberg.com/news/articles/2023-02-26/japan-s-bitflyer-founder-seeks-comeback-to-calm-crypto-turmoil" target="_blank" rel="noreferrer noopener">reported</a> Sunday.



Yuzu Kano, who owns 40% of BitFlyer, stepped down as CEO in 2019 following a regulatory crackdown over customer protection concerns and anti-money laundering practices the year before.



Kano believes he was forced out by current management and ACA Partners, a Singapore-based fund, whom he said collaborated to sell the company without his knowledge or consent.



He also said he canceled the deal upon discovering that ACA had convinced a majority stakeholding group to sell their shares, excluding him, at an $80 billion valuation for BitFlyer.



Management allowed ACA to approach shareholders inappropriately and secure the deal behind his back, the co-founder alleges. ACA did not immediately respond to Blockworks’ request for comment.



Despite recent turmoil, BitFlyer boasts 3 million accounts and handles more bitcoin transactions than any other exchange in Japan. The country still lags behind other nations in furthering its domestic crypto market, though Kano is confident he can change that.



The co-founder aims to bolster BitFlyer&#8217;s business and compete globally by implementing several initiatives. These include introducing stablecoins, developing a token-issuance system, and potentially making its private Miyabi blockchain technology accessible to the public.



But first he must win over shareholders, who may be skeptical given his involvement in the recent turbulence surrounding the exchange.



BitFlyer&#8217;s CEO, Hideki Hayashi, acting on behalf of the current president, Masaaki Seki, declined to comment on Kano&#8217;s statements, per the report. Hayashi noted that all shareholder-related concerns would be discussed at an upcoming meeting.



The shareholder&#8217;s meeting, where Kano will present his proposal, is scheduled for next month.



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BitFlyer Founder Eyes Return as CEO

Sam Reynolds

<div id="highlights-block_d8dd510c40eb42290a27e2b4690b45f8" class="highlights">
 <ul>
 <li>Regulatory concerns meant the JPY-BTC trading pair was previously off limits to foreign traders</li>
 <li>The market is considered hard to access because of a strict regulator, which makes stablecoin issuance difficult </li>
 </ul>
 
</div>



BitFlyer announced today that it has gotten regulatory approval to open the bitcoin-Japanese yen trading pair to traders in the United States.&nbsp;



The exchange says that its bitcoin/yen spot market posted over $30 billion in trading volume during the first quarter of 2021, or roughly 40% of the total market.&nbsp;



“BitFlyer&#8217;s bitcoin/yen market is one of the largest bitcoin to fiat markets in the world. In fact, our Q1 volume was equal to or greater than the bitcoin/yen markets of exchanges like <a href="https://blockworks.co/tag/bitstamp">Bitstamp</a>, Kraken, Gemini and more,” Joel Edgerton, chief operating officer of BitFlyer, told Blockworks in an interview. “Many institutional clients are aware of the importance that this particular market and <a href="https://blockworks.co/tag/japan">Japan</a> as a whole have on the industry, and consequently have tried to access it for some time. However, due to the regulatory constraints, this hasn&#8217;t been easy.”



Although the bitcoin/yen trading pair is one of the world’s largest by volume, it’s largely walled-off from foreign investors.



Historically, this has made for some arbitrage opportunities as very few investors could actually trade in both markets. FTX founder Sam Bankman-Fried is probably the best known trader to capitalize on this opportunity, as he <a href="https://www.youtube.com/watch?v=BQiRA_-VAd8" target="_blank" rel="noreferrer noopener">explained in an interview </a>on Blockworks’ <a href="https://youtube.com/playlist?list=PLvER9nHSRN3wPkrDGTT5_8VC4Hjcq0f9U" target="_blank" rel="noreferrer noopener">Empire</a> podcast, but it was also a heavily capital intensive process fraught with regulatory and counter-party risk.



“Opening this market is a direct response to demand from institutional and sophisticated traders who want to access this huge liquidity pool that has been available to Japanese clients only, and the unique trading opportunities it presents,” Edgerton continued.



There are “very interesting pricing dynamics” in the market because of the significant retail flow on the bitcoin/yen trading pair, Edgerton explained.



One peculiarity of the market in Japan, much like Korea, is the lack of interest traders have in stablecoins. In an earlier interview with <a href="https://cms.blockworks.co/circle-hiring-in-asia-as-usdc-demand-grows/" target="_blank" rel="noreferrer noopener">Blockworks</a>, Oleg Smagin, global business manager at Korean digital assets platform Delio, said that a combination of regulatory complications and cheap money transfer fees means that the market hasn’t taken off in-country.&nbsp;



“This environment makes companies think twice before experimenting with stablecoins, especially because the government here has never been positive about this idea,” he told Blockworks.



In Japan’s case, it is purely an issue with a conservative regulator not providing clarity.&nbsp;



“Stablecoins in Japan haven&#8217;t scaled due to the lack of regulatory clarity around them. Therefore, pretty much all the bitcoin volume is traded against fiat in Japan,” he told Blockworks. “The situation is similar to what it is with the Korean won: It&#8217;s hard to access that market, and because of the unique trading opportunities it presents, sophisticated traders and institutional clients want to access it.”



At the same time, Circle is <a href="https://cms.blockworks.co/circle-hiring-in-asia-as-usdc-demand-grows/" target="_blank" rel="noreferrer noopener">said to be preparing</a> to expand into Asia and is hiring in multiple Asian financial hubs. 



Last week, Circle <a href="https://fortune.com/2021/06/01/circles-raise-is-the-latest-in-the-crypto-cash-rush/" target="_blank" rel="noreferrer noopener">raised</a> $440 million from Fidelity Management and Research Company, Marshall Wace, Willett Advisors, Intersection Fintech Ventures, Atlas Merchant Capital, Digital Currency Group, FTX, Breyer Capital, Valor Capital Group, Pillar VC, as well as Michael J. Price and Friends. However, it&#8217;s not known if Circle&#8217;s expansion into Asia will focus on USDC, or regionally denominated stablecoins.



Edgerton expects that with this new onramp to the Japanese crypto market, US-based institutional interest is sure to follow.&nbsp;



“We became the first exchange to get licenses in Japan, EU, and the US precisely for this: to break down the walls that the current regulatory framework across jurisdictions and traditional banking infrastructure have created. BitFlyer is connecting the global cryptocurrency market in a compliant way,” he continued.&nbsp;