Japan Cracks Down on Local FTX Unit, Freezing Exchange Activity

Takashi Nakamichi and Nao Sano, Bloomberg News

A Japanese flag flies as members of the public attend the New Year's appearance by the Japanese royal family at the Imperial Palace in Tokyo, Japan, on Wednesday, Jan. 2, 2019. Japan's Emperor Akihito, the head of the world oldest hereditary monarchy, is scheduled to abdicate on April 30, handing over the position to his son, Crown Prince Naruhito. , Bloomberg

(Bloomberg) -- Japan’s government has ordered FTX.com’s local subsidiary to suspend some of its operations, saying it has no structure in place to properly offer cryptocurrency exchange services to users.

The Kanto Local Finance Bureau instructed the unit to pause client services until Dec. 9, according to a statement released Thursday. The company is not allowed to accept new assets from clients over that period.

“We need to do everything possible to protect the interests of FTX Japan’s users,” Finance Minister Shunichi Suzuki said at a news briefing on Friday. “It’s extremely regrettable that the situation has come to this.”

The move follows the dramatic downfall of crypto mogul Sam Bankman-Fried, who on Wednesday told investors that his troubled exchange FTX may have to seek bankruptcy if it doesn’t get a bailout. He is shutting down Alameda Research, the trading house at the heart of his digital-asset empire, in an attempt to save the exchange.

Suzuki said Japanese law requires crypto exchanges to manage user assets separately from their own, which provides a certain amount of protection to users.

FTX’s decision to halt clients’ asset withdrawals means it doesn’t have the necessary structure to provide crypto exchange services in a manner deemed appropriate under domestic standards, the regulator said. The government has asked the company to submit a business improvement plan by Nov. 16.

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--With assistance from Yuko Takeo and Gareth Allan.

(Updates with finance minister’s comments in third and fifth paragraphs)