Even though the Japanese lawmakers have been on the receiving end of criticism from the crypto community, Coinbase welcomes the increased scrutiny on crypto aficionados in Japan. The biggest American crypto exchange hopes the ever-tightening crypto regulation will put Coinbase in an advantageous position, as it prepares to enter the Japanese market.

Speaking to Nikkei Asian Review, Mike Lempres, chief policy officer at Coinbase, claimed that the negotiations with Japan’s Financial Services Agency (FSA) about obtaining an operating license are “going well” and that “it will certainly be in 2019.”

Coinbase announced its intention to open a Japanese branch in 2016 and have appointed Nao Kitazawa, formerly of Morgan Stanley, to head the office back in June. Boasting over 20 million users and more than $1 billion in revenues last year, Coinbase is truly a lynchpin of American crypto industry. Lempres revealed that 99% of the client funds are stored offline, while the remaining 1 percent is kept in “hot wallets”, which are connected to internet and subsequently more prone to hacker attacks. In any case, that 1 percent is fully insured.

The FSA has stepped up its efforts to restrain crypto exchanges, especially after the infamous $534 million Coincheck hack in January. The Japanese financial watchdog is yet to issue a single crypto exchange license this year, despite reviewing 16 applications. Meanwhile, over 160 firms, including public companies, are planning to submit their exchange applications. Last month, FSA has further toughened the screening process, increasing the number of questions asked in applications four times, to 400. The exchanges are now also required to submit records of their board meetings.

Despite such a strict stance, Lempres is confident that Coinbase will get the regulatory nod, claiming that, “The Japanese government is more focused on security. That is good for us.” He also added that, “Japan has been an active large market from the very beginning, and has proved resilient as it bounces back from several bad experiences. We think there is great demand for a trusted provider of services here.“

The biggest challenge now remains the FSA requests, namely whether the regulators will require to operate the Coinbase system in Japan. Even though such a move would help FSA to monitor the exchange, it would also significantly increase the security risks. According to Lempres, “We have everything built to protect our storage… in the U.S. We won’t do anything to even raise the possibility of a hack. It would be hard for us to duplicate what we do in the U.S. today in Japan and other countries.“

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