Japan’s financial market watchdog, the Financial Services Agency (FSA), has flagged KuCoin and other crypto exchanges and firms for operating certain services without proper registration.
In a statement on Thursday, the watchdog included KuCoin in the list of “unregistered businesses to which warning letters have been issued.”
The agency added that KuCoin, NeonFX, TheOption, and GTCFX were slapped with notices in March for “soliciting over-the-counter (OTC) derivative transactions via the internet.”
Interestingly, the escalation comes after the agency requested Apple and Google to block access to five unregistered crypto exchanges in February 2025. Amongst those targeted during the crackdown were KuCoin, Bybit, MEXC Global, LBank, and Bitget.
KuCoin’s regulatory headwinds
However, KuCoin’s regulatory woes go well beyond Japan. In May 2024, the exchange was forced to wind down its operations in Hong Kong. This followed restrictions and a crackdown on platforms with ties to mainland China.
Failure to meet the new licensing requirements prompted KuCoin to withdraw from Hong Kong and block users from the region from accessing the platform.
Fast forward to February 2026, and the exchange was partially banned by the Austrian Financial Market Authority (FMA). It failed to implement proper procedures to enforce anti-money laundering laws, as required by the EU’s MiCA guidelines. This was just three months after getting the MiCA license.
Earlier in March, the firm faced another regulatory hiccup with Dubai’s Virtual Assets Regulatory Authority (VARA). The agency issued a “cease and desist” order against KuCoin, alongside three other exchanges, for operating without a license. As such, the firms were banned from advertising or operating in Dubai without a valid license.
Impact of regulatory pressure on KuCoin
Unsurprisingly, the recurring patterns of regulatory hiccups have begun to affect user trust. This was illustrated by the Bitcoin and stablecoin reserves on the exchange. For Bitcoin, the exchange reserves dropped from 14K BTC in 2024 to 2100 BTC in early 2026.
Here, it’s worth noting that the BTC exchange reserve decline was a broader trend across other platforms, likely due to transfers to self-custody wallets.
However, a deeper look at the liquidity or user funds held by the exchange, as painted by the stablecoin reserves, underscored a somewhat worried user base. The stablecoin exchange reserves fell from over $1.3 billion to $543M in just one year.
Even the mid-2025 rally and early 2026 recovery didn’t attract much flow into the exchange – Hinting at caution from users.
Final Summary
- Japan has sent a warning letter to KuCoin and other firms for operating unlicensed OTC derivatives trading.
- Ongoing regulatory headwinds have eroded user trust, with user funds dropping from over $1.3B to $543M amid persistent outflows.
