Japan Financial Services Agency Requires Cryptocurrency Exchanges and Other Institutions to Halt Use of ID Images for Identity Verification Ahead of Schedule

On October 9, according to NADA NEWS, the Japanese Financial Services Agency (FSA) has required financial institutions, including cryptocurrency exchanges, to halt the use of driver's license images and other document photos for Know Your Customer (KYC) verification as soon as possible, and shift to a new verification method that reads integrated circuit (IC) chip information via smart devices. Although the traditional image-based verification method was originally scheduled to be discontinued on April 1, 2027, due to recent frequent unauthorized access to customer and business systems leading to personal data breaches, the FSA has directed relevant institutions to accelerate the transition immediately without waiting for the official implementation date.

The new integrated circuit (IC) chip verification method will verify applicants by cross-referencing information stored on the chip (including name, address, date of birth, and photograph) with the applicant's facial image. Additionally, the FSA requires relevant companies to comprehensively review their identity verification processes, third-party vendor risk management, and cybersecurity incident response mechanisms to strengthen anti-money laundering (AML) compliance and mitigate fraud risks.