Japan rejects firm's application to run a cryptocurrency exchange

TOKYO, June 7 (Reuters) - Japan’s financial regulator on Thursday rejected an application by a domestic company to run a cryptocurrency exchange, saying it lacked the needed internal controls to safeguard customers’ assets and to prevent money laundering.

The rejection of Yokohama-based FSHO comes amid growing scrutiny over the cryptocurrency industry after the $530 million theft of digital money from Coincheck earlier this year.

Japan last year became the first country to regulate cryptocurrency exchanges, with 16 approved as registered exchanges.

Separate from the 16, about a dozen other exchanges including FSHO have operated on a provisional basis while awaiting action from the Financial Services Agency on applications for registration. These firms were already in the business when Japan started requiring regulation.

FSHO, whose operations have been suspended since March, was the first of those exchanges to get a decision from the regulator.

One of the exchange operating on a provisional status and waiting for approval is Coincheck. The company was acquired by online brokerage firm Monex Group Inc in April.

With the rejection, FSHO cannot operate. Its March suspension was ordered as the FSA determined it did not have proper measures in place to run the exchange.

FSHO officials were not immediately reachable for comment.

In March, FSA punished seven cryptocurrency exchanges, ordering a second one in addition to FSHO to suspend business. (Reporting by Taiga Uranaka; Additional reporting by Takahiko Wada; Editing by Richard Borsuk)