Japan fintech: a wholesale rethink
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Japan fintech: a wholesale rethink

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Yuri Suzuki of Atsumi & Sakai looks at the Japanese government’s Growth Strategy and how it might reformulate financial regulations to foster fintech development in financial services

Yuri Suzuki of Atsumi & Sakai looks at the Japanese government’s Growth Strategy and how it might reformulate financial regulations to foster fintech development in financial services

Japan's current financial regulations are in essence based on business categories such as banking, which is carried out by banks that are regulated by the Banking Act, and fund transfer services, managed by providers regulated by the Payment Services Act. The recent development of fintech has revealed that such category-based regulations could pose as an obstacle to the flexible provision of services and the market entry of newcomers. The Japanese government's Growth Strategy, published on June 21 2019, indicates that the government intends to reconsider and reform the overall regulatory framework in financial services. In particular, the government is planning a prompt reform to the laws and regulations governing payment services.


While the share of cashless transactions (the share of private final consumption expenditure payments made by credit cards, debit cards and electronic money) was only 24.1% in 2018, payment services have become varied and diverse with the growth of fintech. Further, both the total amount transferred and the number of transactions made by fund transfer service providers that are not banks are trending upwards.

Interestingly, under the existing payment legislation, there are multiple types of business registrations and licences for transferring funds and making payments. For instance, a bank transfer is the only way to transfer an amount of over ¥1 million (approximately $9,300). However, transfers of ¥1 million or less can be executed via a fund transfer service provided by a registered fund transfer business operator. Another example is that prepaid payment instruments (PPI) can sometimes function as fund transfers when a PPI user is able to transfer funds to another PPI user. In such a case, however, the recipient cannot withdraw the cash from his or her PPI account since the transfer is categorised and regulated as a PPI instead of a fund transfer service under the Payment Services Act.

As the vertical structure of the existing category-based legislation could restrict the freedom of business operators to choose business models and service categories, the government's Growth Strategy proposes to address this by enhancing horizontal legislation in the area of payments. The government promotes flexible and highly convenient means of cashless payment by encouraging market entry by new business operators and competition between services, and plans to facilitate the following new types of payment services other than the existing conventional bank transfers and comparatively expensive credit card payments:

  • Seamless payment services combining prepayment and post-payment for the purposes of small and low-risk payments. The regulatory framework will be different from the one for conventional payment services (for example, banks and credit cards), which are relatively expensive.

  • A new business category between banking and fund transfer businesses (currently capped at transfers of not more than one million Japanese yen) to enable a wide range of fund transfer services, with the goal of achieving a streamlined system that allows fund transfers in excess of one million yen under less stringent regulations than those applied to bank transfers.

The Growth Strategy also proposes the introduction of a mechanism that enables smooth business deployment by payment service providers, including fintech companies, for instance by relaxing the credit screening rules applied to credit card issuers to allow the use of various data and technologies. A bill addressing these plans is expected to be submitted to the ordinary Diet session in 2020.


Beyond payments, business operators engaged in financial transactions agents or intermediary businesses are also currently classified according to the category-based legislation. For instance, bank agents and digital settlement agents, both of which are intermediaries between banks and customers, are regulated by the Banking Act, financial instruments intermediaries, which intermediate between securities firms (registered as financial instruments business operators) and customers, are regulated by the Financial Instruments Exchange Act and insurance agents and insurance brokers, intermediaries between insurance companies and customers, are regulated by the Insurance Business Act. If a business operator plans to provide intermediary services across these financial products to financial institutions and/or retail customers, they need to register with the authorities designated in each law under the current legislation.

Furthermore, under the existing legal system, a bank agent, financial instruments intermediary or insurance agent belongs to a specific bank, securities firm or insurance company. In practice, this means that an agent that plans to provide intermediary services for several financial institutions will be supervised by all of these financial institutions, which could be cumbersome for the agent.

In this way, again, category-based legislation may pose an obstacle to the entry of new business operators. Therefore, the government will seek a new legal framework for cross-sectoral financial services intermediary businesses to enable the horizontal provision of services across payments, financing, asset management and insurance risk transfer. The aim is to encourage the provision of highly convenient "one-stop shop" services using smart phones, for instance, that meet the needs of individual users, make it easier for the users to choose financial services that suit their circumstances and boosting competition in the quality of financial services. The basic approach to this task is expected to be published by the end of this year.

In this way, the government is working to establish a cross-sectoral legal system based on functions, in which the same rules apply to businesses with the same functions and risks, instead of the existing category-based financial and commercial legislation. The Growth Strategy concluded that this approach will promote innovation by attracting new business operators into the market and stimulating competition among various services as well as boosting the quality of financial services. Further, the planned reform could make it easier for overseas fintech firms, as well as domestic enterprises, to enter the financial services industry in Japan.

About the author



Yuri Suzuki

Senior partner, Atsumi & Sakai

Tokyo, Japan

T: +81 3 5501 1184

E: yuri.suzuki@aplaw.jp

W: www.aplaw.jp/en/lawyers/yuri-suzuki

Yuri Suzuki, a partner of Atsumi & Sakai, heads the firm's fintech team and is a member of the secretariat of the Fintech Association Japan. She has substantial experience in fintech, including payments, lending, invoice trading, wealth management, crowd funding, cryptoassets, insurtech and regtech. She also serves as a legal advisor to the Japan Blockchain Association and to the MUFG Digital Accelerator Program as well as being a supporter of the Tokyo Metropolitan Government Accelerator Programs.

She is an auditor of The Organization of Global Financial City Tokyo (branded as FinCity.Tokyo), which is the newly established promotional body founded by the Tokyo Metropolitan Government in conjunction with private business, including major financial institutions, in order to promote and to continuously upgrade Tokyo's financial ecosystem.

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