Coincheck reports to regulators over cryptocurrency heist as investors withdraw $373 million

By Thomas Wilson and Taiga Uranaka

TOKYO (Reuters) - Japanese cryptocurrency exchange Coincheck Inc, under pressure to better safeguard investors after the daring theft of $530 million of digital money last month, said it had on Tuesday filed a report with regulators on the hacking.

The Financial Services Agency ordered Coincheck to raise its standards after the late-January hack, directing it to submit a report on the security of its systems and measures it would take to prevent a repeat of the theft, one of biggest-ever of digital money.

The report included Coincheck's investigation into the heist and details of steps to bolster its risk management system, Chief Operating Officer Yusuke Otsuka told a news conference.

The submission of the report came as the exchange, which froze all withdrawals of yen and cryptocurrencies following the heist, lifted curbs on yen-withdrawals after completing checks on its system's security.

The heist exposed flaws in Japan's system of regulating cryptocurrency trading, and raised questions over its dash to oversee the industry.

Japan's creation of a regulatory system is in sharp contrast to clampdowns on the trade by policymakers in countries such as South Korea, China and India.

Customers withdrew 40.1 billion yen ($372.7 million) on Tuesday and the exchange would be able to meet future withdrawal requests, Otsuka said. He declined to comment on the total amount of customers' yen still stored at the exchange.

Coincheck, which last month promised to repay about 46.3 billion yen ($425 million) of the cryptocurrency it lost in the theft, declined to specify when it would make the repayments.

"We have the funds, but we are making individual checks so there are no problems (with repayments)," said Otsuka.

He declined to comment on whether the FSA had verified that Coincheck has enough funds for the repayments.

LAWSUIT

Despite allowing customers to resume yen-withdrawals, Coincheck said it would keep in place curbs on cryptocurrency withdrawals until it could guarantee the secure resumption of its operations.

"An external security company is making checks, and we are preparing to resume once we have confirmed the safety of our networks," Otsuka said, referring to cryptocurrency withdrawals.

A lawyer representing a group of 10 cryptocurrency traders told Reuters earlier that they would launch a lawsuit against Coincheck on Thursday over the curbs on taking out cryptocurrencies.

The group will file a claim at the Tokyo District Court for Coincheck to allow withdrawals to private "wallets" - digital folders for storing money - outside the hacked exchange, the lawyer, Hiromu Mochizuki, said.

Separately, Bank of Japan Governor Haruhiko Kuroda said cryptocurrencies likely would not threaten legal tenders like the yen any time soon as they were mostly used for speculative trading, rather than as payments and settlement means.

Kuroda also said the BOJ was closely watching developments in cryptocurrency trading to ensure they did not erode public trust over the safety of existing settlement systems overseen by the central bank.

"Cryptocurrencies aren't legal tender and don't have assets to back up their value," the BOJ chief said.

($1 = 107.6000 yen)

(Reporting by Takahiko Wada, Thomas Wilson and Taiga Uranaka; Additional reporting by Leika Kihara; Editing by Shri Navaratnam, Robert Birsel)