Japan: 2020 strategy paper promises fintech boost
Naoki Kanehisa of Atsumi & Sakai gives the inside track on the Financial Services Agency of Japan’s policy priorities for 2020 and its hopes for digitalisation
Naoki Kanehisa of Atsumi & Sakai gives the inside track on the Financial Services Agency of Japan's priorities for 2020 and its hopes for digitalisation
On August 28 2019 the Financial Services Agency of Japan (JFSA) published its policy assessment and strategic priorities in a report titled 'JFSA's Initiatives for User Oriented Financial Services in a New Era - Financial Services Policy: Assessments and Strategic Priorities 2019'.
The report outlines the progress the JFSA has made in its key policy areas and identifies some of the bigger challenges it faced from July 2018 to June 2019. It also indicates which goals it aims to achieve, and its policy measures for the next year through to June 2020. One of the JFSA's three main initiatives will be finance digitalisation, something which it first announced in 2018.
The digitalisation strategy comprises 11 measures to improve financial services in light of the rapid changes taking place in financial markets. As the JFSA moves ahead with its 2020 strategy it will focus on five important areas.
Data use and privacy
The JFSA encourages data projects, such as the 'information bank' project (please see Japan: green light for information banking), that are being pursued by financial institutions and which will provide advanced services to customers.
At the same time, protecting customers' personal information and privacy remains a key element in the promotion of safe data use. It is therefore expected that the JFSA's finance digitalisation strategy will provide a boost to businesses working in customer identification or know-your-customer (KYC) and encourage the introduction of e-KYC, which has been legally permitted since November 30 2018. Any information other than personal information should be treated in line with the new concept spearheaded by Prime Minister Shinzo Abe's of 'data free flow with trust'. This is a concept that hopes to facilitate cross-border data flows among countries with high levels of privacy protection, data security, and intellectual property rights.
The JFSA has supported various businesses aiming to create new financial services through a variety of channels.
The agency set up the FinTech Innovation Hub in July 2018 to enhance information gathering. The FinTech Support Desk, which was launched in December 2015, has been a one-stop contact point for inquires and information exchange on fintech. Furthermore, the FinTech Proof-of-Concept Hub and Regulatory Sandbox regime introduced in June 2018 (see Japan: sandbox reform) has supported new technologies and businesses and is expected to be increasingly used.
In addition, the Financial Market Entry Consultation Desk provides advice on Japan's financial regulations to foreign business operators that plan to establish a base in Japan. It works closely with the Tokyo Metropolitan Government's Financial One-Stop Support Service to assist foreign business operators with setting up their businesses in Tokyo.
The JFSA has also been promoting initiatives that make use of open architecture. It will encourage financial institutions to introduce open API and make agreements with electronic payment service operators to facilitate open banking. Digital banks are not yet permitted in Japan, though the JFSA is carefully considering whether they satisfy regulatory requirements.
Function-based, cross-sectoral financial regulations
The JFSA is looking at the implementation of a function-based and cross-sectoral regulatory framework for payment fields and financial services intermediation (see Japan: wholesale regulatory rethink). A bill addressing the new regime is expected to be submitted to the Diet in 2020.
In a separate but related field, the JFSA is also working on implementing a regtech/suptech ecosystem to develop efficient regulations.
It is becoming increasingly important to strengthen a cybersecurity management system for financial services such as outsourcing, and this necessity was especially evident when the country was steeling itself against potential cyberattacks during the 2020 Tokyo Olympic and Paralympic Games. It will also be crucial all market participants to grasp the latest trends in technology, such as blockchain, and based on the JFSA's strategy, market participants should expect further developments in the fintech/innovation market in Japan during 2020.
About the author
Partner, Atsumi & Sakai
T: +44 (0)203 696 6540
Naoki Kanehisa is a partner in Atsumi & Sakai and currently heads the firm’s London office, from where he has been advising UK and European clients, including fintech companies, on setting up their businesses in Japan. Naoki has extensive experience in banking and finance, financial regulations, joint-ventures and M&A. He has presented seminars on fintech in London and Paris, including: ‘Procedures and Licencing Requirements for Japan Market Entry for Asset Management and Fintech Businesses’ for the ‘Tokyo-London: Financial Seminar 2018’, hosted by the Tokyo Metropolitan Government.