1st LD Writethru: BOJ chief says virtual currency exchanges should enhance security measures

TOKYO, Jan. 31 (Xinhua) -- Bank of Japan (BOJ) Governor Haruhiko Kuroda on Wednesday said the operators of virtual currency exchanges should step up measures to explain potential risks to investors and enhance security measures.

"Providers of cryptocurrency services need to explain risks to investors proactively and take sufficient security steps," Kuroda was quoted as telling a Diet session on Wednesday.

He added that for virtual exchanges, "stability and safety" of their settlements and services are paramount and that investors must be made aware of the risks of transactions using cryptocurrencies.

The central bank chief's remarks were made after Tokyo-based Coincheck Inc. said it had lost 532 million U.S. dollar's worth of NEM cryptocurrency in a hacking attack.

On Jan. 26, the virtual currency exchange halted the majority of its operations, stating later that all of its customers' holdings of the lesser-known NEM cryptocurrency coins had been stolen.

The losses of the NEM cryptocurrency in the Coincheck cyber-heist were the largest ever in a security breach.

Coincheck said that 260,000 of its customers affected would be compensated for the 46 billion yen (432 million U.S. dollars) in cash that was lost at the time.

Many customers were irate, however, because the amount reflected a lower rate of NEM coins, as the announcement was made after news of the possible theft had become public.

On Monday, Japan's financial watchdog issued a business improvement order to Coincheck for not having sufficient security measures to prevent such attacks, with agency officials also saying the company has a poor standard of customer service.

The agency instructed Coincheck to investigate the cause of the security breach and report its future preventative measures back to the it by Feb. 13.

Japan's Kyodo News on Wednesday said it had confirmed that around 530 million U.S. dollars in stolen NEM coins had been distributed to around 20 digital addresses reportedly to avoid being traced.

This was after the coins were initially transferred to a single anonymous address before being dispersed.

Coincheck had previously said that the stolen NEM coins were being tracked and that they have yet to be converted into cash.

The NEM.io Foundation, based in Singapore, is helping Coincheck trace the stolen coins and said that it has "tagged" the coins which marks them as stolen assets that would be easily identifiable if they were to be traded through an exchange with the requisite regulations.

The coins stolen in the cyber-theft were being stored in a digital wallet at the time, Coincheck said, which is not as secure as an offline wallet.

Coincheck had previously been warned by Japan's financial watchdog about storing its coins in this way.

In 2014, Mt. Gox, another Tokyo-based virtual currency exchange, suspended operations on its exchange after a number of cyber attacks led to bitcoin worth 48 billion yen (441 million U.S. dollars) being stolen.

Japan's top government spokesperson, Chief Cabinet Secretary Yoshihide Suga, said on Monday the government was investigating the latest incident.

Following the Mt. Gox incident, the government here changed the law and made it a requirement that virtual exchanges register with the government from April 2017.

Coincheck's registration with the government, however, was still pending approval at the time of the heist.

Tokyo's Metropolitan Police Department is also investigating the case. Enditem