Japan’s regulatory authority, the Financial Services Agency (FSA), is increasing the regulatory pressure on new cryptocurrency exchange applicants in an effort to increase the security and operational standards of exchanges and to reduce illicit activities occurring on exchanges.

According to a local news report from the Japan Times, the FSA has “increased the number of questions asked when screening applications to about 400 items, up fourfold,” according to unnamed sources. The report further states that the FSA is now obligating applicants to “submit minutes of board meetings so it can check whether enough discussions have been held about measures to sustain the company’s financial health and ensure the security of its computer system.”

The increased scrutiny comes after the Japanese government revised the Payment Services Act, legally recognizing cryptocurrencies, like Bitcoin, as a legal method of payment last April. Because of this revision, crypto exchanges based in Japan are now required to acquire proper licensing from the FSA, which subjects cryptocurrency exchanges to a higher level of regulatory scrutiny.

In addition to recording board meeting minutes, exchanges now must open their doors to the FSA for on-site inspections, in which the FSA will examine the exchange’s internal practices in order to ensure that the management teams are meeting the regulatory requirements.

The report stated that:

“The FSA’s on-site inspections have revealed sloppy internal controls at cryptocurrency exchanges, including a lack of board meeting minutes. More than 100 companies have shown interest in being registered as cryptocurrency exchange operators. The stricter process may prompt some to give up, analysts said.”

The increased pressure on Japanese cryptocurrency exchanges comes several months after Coincheck was hacked for over $500 million in NEM. After a thorough investigation, investigators found that the security flaws that led to the hacking were directly linked to internal management flaws that made the exchange vulnerable.

Coincheck’s CEO even admitted that the hack was a result of the exchange not hiring enough talented and experienced security and software engineers.

The increased regulatory scrutiny on Japanese cryptocurrency exchanges signals that regulatory authorities are beginning to hold exchanges to the same standards as banks, in an effort to protect the billions of dollars’ worth of investor funds that are now stored and transmitted on crypto exchanges.