LBank Faces Scrutiny for Violating Japan’s Financial Rules

LBank has received a strong warning from Japan’s Financial Services Agency (FSA) for allegedly conducting transactions without proper registration. According to Coinpost, the FSA found that the cryptocurrency exchange operated with an unknown address and an unidentified representative, raising serious concerns about transparency and accountability.

Regulatory Violations and Market Presence

LBank reportedly facilitated cryptocurrency transactions with Japanese residents via the internet, violating Japan’s regulatory framework. Established in 2015 and registered in the British Virgin Islands, LBank supports 671 coins and 814 trading pairs. Data from CoinGecko ranks LBank at #55 in terms of 24-hour spot trading volume.

This warning comes shortly after LBank hosted a high-profile web3 investor meetup in Dubai, highlighting a gap between its global outreach efforts and regulatory compliance.

Historical Warnings and Market Impact

This warning is not an isolated incident. In March 2023, the FSA issued similar warnings to four other exchanges: Bybit, MEXC, Bitget, and Bitforex. These platforms also offered crypto trading services to Japanese residents without proper registration. CoinGecko data shows Bitget and Bybit rank among the top exchanges globally, at #3 and #4, respectively, based on visitor numbers in the last 30 days.

Bybit, known for derivatives trading, has a significant user base in Japan. Despite their popularity, these platforms remain off-limits to Japanese traders due to strict regulatory restrictions.

Comparing Japan and U.S. Crypto Regulations

Japan and the U.S. approach crypto regulation differently. Under Japan’s Payment Services Act (PSA), cryptocurrencies are recognized as legal property. Crypto exchanges must register with the FSA and follow anti-money laundering (AML) and counter-financing of terrorism (CFT) guidelines. Additionally, most cryptocurrencies in Japan are treated as assets, while initial coin offering (ICO) tokens fall under type 2 securities, regulated by the Financial Instruments and Exchange Act (FIEA).

In contrast, the U.S. regulatory framework is fragmented and evolving. In 2022, President Joe Biden’s administration initiated an executive order to assess the risks and benefits of cryptocurrencies, leading to a roadmap for increased regulatory enforcement. However, the White House recently vetoed a bill from the House of Representatives that aimed to repeal a controversial SEC bulletin affecting custodial services for crypto assets.

The SEC actively treats many cryptocurrencies as securities and takes legal action against non-compliant businesses. A significant development was the 2023 court ruling on Ripple’s XRP, determining that XRP sales to institutions are securities, but not when sold on exchanges, marking a nuanced win for the crypto sector.

Both Japan and the U.S. continue to refine their regulatory policies. Japan leads with a structured approach, while the U.S. navigates ongoing legal and regulatory debates.