On June 3 2016, the Reform Act of the Banking Act, etc
(the Reform Act), which includes amendments to the Banking Act,
was enacted. Its aim is to respond to the diversification of
the form of business management in financial groups and the
rapid rate of innovation in information technology (IT). The
details of the new regulation will remain unclear until the
amendments to the relevant cabinet orders are announced.
However, the Reform Act concerning the amendments to the
Banking Act has already revealed the new regulatory framework
for the banking group.
Under the Reform Act, the bank holding company must ensure
the appropriate business management for the banking group as a
whole; for example, the management of conflicts of interests
among the companies in the banking group. This amendment
clarifies and enforces the bank holding company's
On the other hand, the Reform Act deregulates the
restriction of services conducted by the companies in a banking
group, including the bank holding company. This means that the
banking group can integrate overlapping businesses among the
group companies; for example, system management activities. The
Reform Act also introduces an exemption from the so-called
arm's length principle which governs the transaction between
the bank and the specified related party, so long as the
transaction will not damage the soundness of the management of
The Reform Act also deregulates the scope of business that
subsidiary companies can conduct. This amendment will enable
subsidiary companies to both invest in financial
technology-related companies and also accept businesses
relating to settlement services.
With regard to the foreign banking group, the Reform Act
introduces a group-based authorisation to the foreign bank
agency service. This will make it convenient for the companies
in the group to provide financial services.
The Reform Act is scheduled to come into effect by June 3
2017. The new legislation is expected to promote operational
efficiency and the appropriate management of the banking group
as a whole, as well as IT innovation in Japan.