The parent company of Japanese cryptocurrency exchange Zaif, Tech Bureau, has announced that it is temporarily halting new accounts on the exchange. The decision follows the hack of the exchange last month, which saw it lose around $60 million worth of cryptocurrency. While stressed as only temporary, the new account suspension is certainly one that will set off a few alarms. The suspension only impacts any potential new customers – not those who already have accounts or who have already verified their identification.
Tech Bureau brass said that the company will pull the suspension once it decides on a compensation plan for its customers who lost holding during the hack. The reason is a little puzzling given that the company had allegedly already secured the funding necessary to repay its customers. That funding was announced at the same time the company announced the theft.
In an announcement by the firm, Tech Bureau said, “After concluding the basic agreement, we are advancing consultation and negotiations for concluding a formal contract, there is no change in the policy to ensure thorough compensation for customer assets, and we are continuing to consider the details of specific response…As soon as the content is confirmed, we will report it promptly.”
The exchange is being investigated by the Japanese Financial Services Agency (FSA), which has already issued it a business improvement order. Nonetheless, the FSA wants to take a closer look at the company’s user protection systems. Zaif has received three business improvement orders since it opened – two in this year alone.
Some of the stolen crypto has already been tracked, but getting it back is going to be virtually impossible. The funds were sent to offshore exchanges, the majority of which maintain wallets that do not have to adhere to any anti-money laundering or Know Your Customer regulations. This will make it difficult to determine who owns the wallets.
Two weeks after the hack occurred, Zaif finally realized what had happened. It immediately halted operations and announced the theft. It also said at the time that it had worked out a deal with Japan-based Fisco Digital Asset Group Co. ltd. that would see the latter receive a major share in the company in exchange for about $44.5 million, which Zaif said would be used to reimburse its customers, along with funds it held in reserve.
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About three weeks ago, the Japanese cryptocurrency exchange Zaif was the target of hacker(s) who made off with around $60 million worth of cryptocurrency. Once the hack was uncovered by the exchange (which, incidentally, took two weeks to discover), the exchange’s parent company, Tech Bureau, suspended trading, apologized to its customers and said that restitution of deposits was forthcoming. Fast-forward to today and – even though it has allegedly already made arrangements to have the funds available – clients are still waiting for their money.
In order to compensate customers for their losses, Tech Bureau announced after the hack that it had made a deal to sell a large chunk of the company to Fisco Digital Asset Group for $44.5 million. That, coupled with its own savings, would give it the money needed to cover investors’ losses. However, it told regulators this week that it needed more time to finalize the repayment plan. It had previously said that it had expected to have the plan in place by the end of last month.
In making its announcement, Tech Bureau added that it is still trying to work out the terms of the Fisco deal. This is surprising since the two were able to quickly come to an understanding following the hack and they’ve now had three weeks to hash out the details.
Japan’s Financial Services Agency (FSA) stepped in to investigate following the hack and subsequently issued Tech Bureau a business improvement order. It was the third received by the company for the Zaif exchange this year and the third since the exchange began operations.
There have been two major hacks of Japanese exchanges this year, the Zaif heist and the Coincheck hack this past January. The scandals have put more pressure on regulators to intervene and crack down on crypto exchange operators to ensure they are protecting their customers adequately. Many are now calling for changes to how the companies manage user funds, with some pushing for the assets to be stored in cold wallets, a type of offline storage facility, instead of in hot wallets that are always connected to the Internet.
According to Kyoto University professor Kaoyuki Iwashita, “Exchange operators should overhaul their security, including hot wallets. We are well past the point of handling massive amounts of funds with the mindset of startups.”
Japan’s self-regulating body for the cryptocurrency industry, the Japan Virtual Currency Exchange Association (JVCEA), apparently agrees with Iwashita. It has introduced a guideline for the involved exchanges that would require them to store no more than 10% of all assets in hot wallets. However, it is only a guideline and cannot be enforced the same way as if it were law.