Bitcoin fell after one of the world’s largest cryptocurrency exchanges was said to face a government rebuke for operating without a license in Japan, heightening concern that increased regulatory scrutiny will curb demand for digital assets.

Japan’s Financial Services Agency is planning to tell Binance, the trading venue founded by Zhao Changpeng, to stop operating in the country without official approval, a person familiar with the matter said. Binance has several staff in Japan and has been expanding without receiving permission, the person said.

Bitcoin erased gains after Nikkei first reported the FSA’s plans, and the cryptocurrency was trading 2.2 per cent lower at US$8,700.85 as of 10:33 a.m. in London. Rival coins including Ether and Ripple also dropped.

Governments around the world have been stepping up scrutiny of cryptocurrencies in recent months amid worries that they’re facilitating everything from money laundering to tax evasion and fraud. Japan, one of the most active markets for digital assets globally, introduced a licensing system for virtual currency exchanges last year in an effort to improve oversight.

Binance told Bloomberg News in January that it was working to acquire a license in Japan. The exchange is “engaged in constructive dialogue” with the FSA and has “not received any mandates” from the regulator, Zhao said on Thursday.

To date, the FSA has issued licenses to 16 cryptocurrency exchanges, including bitFlyer Inc. and Quoine. Another 16 were given permission to operate without a license. Among those was Coincheck Inc., which suffered a US$500 million hack in January.

In the wake of the Coincheck theft, Japanese authorities have clamped down on the industry. Last month, the FSA issued an administrative penalty against Macau-based Blockchain Laboratory Ltd. for giving seminars and providing consultation services in Japan without a license. And this month, it suspended several local venues for poor security measures.

Binance has consistently ranked as the world’s largest cryptocurrency exchange by volume since late last year, according to Coinmarketcap.com. It held the top volume ranking for the past 24 hours, trading $1.8 billion, the website shows.