All material subject to strictly enforced copyright laws. © 2022 IFLR is part of the Euromoney Institutional Investor PLC group.

Aiming at innovation and a global financial centre

Sponsored by

金融イメージ 日本

By Ryuichi Nozaki and Yuri Suzuki, Atsumi & Sakai

Japan is one of only a few jurisdictions that have already introduced licensing for virtual currencies, such as bitcoin. Under amendments to the Payment Services Act in 2016, virtual currency (VC) exchanges, which provide exchange services between VC and fiat currency, must register with the Financial Services Agency (FSA). Further, VC purchases became non-taxable from July 1 2017 under amendments to the Order for Enforcement of the Consumption Tax Act. As background of such a new regime for VCs, foreign VC exchanges are interested in starting business in Japan.

Recent regulatory developments in Japan's financial sector are primarily based on the Japanese government's June 2017 policy paper Growth Strategy 2017, which contains key performance indicators (KPIs) and specific measures. This article covers the latest legal and regulatory changes affecting the financial sector, mainly focusing on the fintech industry and efforts to make Tokyo a global financial centre.

Promotion of FinTech

Open Innovation

Currently, many accounting services use an account scraping method, which requires a user to provide both their bank ID and password to the service provider to confirm the user's internet banking account information. Open banking application programming interfaces (APIs) would provide convenience to users by enabling them to use these accounting services without surrendering their bank IDs and passwords. In order to accelerate the movement toward banking systems using APIs, amendments to the Banking Act were promulgated on June 2 2017.

First, the Banking Act amendments define two types of electronic payments service providers (EPSPs). A Payment Initiation Services Provider (PISP) acts as an intermediary, electronically delivering a depositor's instructions to its bank to transfer funds between accounts. Account Information Services Providers (AISPs) provide account information to the depositor at its request, using electronic data processing systems. The operation of an electronic payment service business (whether PISP or AISP) requires prior registration with the FSA.

The amendments require banks to make efforts to put in place a system to enable EPSPs to provide electronic payment services without obtaining IDs and passwords from users within two years of the implementation of the amendments. Because one of the KPIs in Growth Strategy 2017 is the introduction of open API in at least 80 banks by June 2020, many banks will feel strong pressure to establish these systems. Under the amended Banking Act, banks will be required to set out and make public their policies regarding cooperation and collaboration with EPSPs by March 1 2018.

The credit card business is regulated by the Installment Sales Act (ISA) and supervised by the Ministry of Economy, Trade and Industry (METI). ISA was amended in 2016 and will require, among other things, either acquirers or payment service providers (PSPs) to be registered with the government authorities; and registered acquirers or registered PSPs to scrutinise the eligibility of merchants they intend to execute an agreement with.

Following such amendments, METI organised a Study Group for API-based Collaboration Involving Credit Card Utilization and published an interim report on June 28 2017. By the end of March 2018, the Study Group will prepare guidelines for promoting API-based collaboration efforts between credit card companies and fintech companies. Further, Growth Strategy 2017 proposes specific measures relating to API coordination pertaining to the use of credit card data and facilitating computerisation of receipts, including the standardisation of formats.

FinTech Testing Hub

The FSA's FinTech Support Desk assists a wide range of businesses currently in the fintech field, as well as businesses considering various fintech-related innovations, by providing a unified response to handle inquiries. In addition to such efforts, Growth Strategy 2017 proposes the FSA's FinTech Testing Hub (its provisional name) as a specific measure to facilitate a fintech testing service. This service would reduce compliance and surveillance risks that would be a concern to fintech companies and financial institutions trying unprecedented experiments. Another specific measure provided in Growth Strategy 2017 is a platform for testing blockchain which will enable experiments on the enhanced financial infrastructure, such as electronically recorded claim transactions and identification verifications.

Regulatory Sandbox

Today many of the countries which promote fintech have implemented or proposed schemes similar to the regulatory sandbox offered in the UK by the Financial Conduct Authority (FCA). While stakeholders in the fintech industry in Japan have been eager to have one, Growth Strategy 2017 contains just such a regulatory sandbox scheme. Japan's regulatory sandbox is not limited to fintech, but its goal is to spur innovations such as AI, big data, distributed ledger technology, drones, and self-driving vehicles.

Aiming at a Global Financial Centre

International Framework

In 2017, the FSA entered into international cooperation frameworks on fintech with financial authorities in the UK, Singapore and Australia. The FSA will assist with international efforts related to fintech and overseas expansion of fintech companies, and will also consider expanding the scope of this cooperative framework with overseas financial authorities.

Global Financial City Tokyo

The Tokyo Metropolitan Government (TMG) has redoubled its efforts to transform Tokyo into a global financial city that can attract human resources, capital and information from around the world. The TMG launched a program to locate appropriate overseas financial companies, including asset management companies and fintech firms, and attract them to Tokyo. The programme includes assistance with formulating business plans, business matching to evaluate synergies with domestic institutional investors and accelerator programs. Further, in the TMG's Financial One-Stop Support Service, the TMG staffs the Business Development Centre Tokyo with a consultant experienced in both financial administration and the financial industry to assist with inquiries regarding applications for licenses with the FSA, as well as other related matters. To respond to the TMG's Financial One-Stop Support Service, the FSA launched the Financial Market Entry Consultation Desk to provide advice on Japan's financial regulations to foreign asset management firms that plan to start businesses in Japan. The FSA consultation desks and the TMG consultants will share such inquiries and will work to respond in an integrated fashion, thus reducing regulatory burdens.

Recent Measures to promote Tokyo as a Global Financial Centre

In 2017, Japan introduced measure, generally aimed at promoting Tokyo as a global financial centre for foreign financial service providers doing business in Japan, offshore providers providing services to customers in Japan, and offshore institutional investors investing in Japanese listed companies.

Principles for Customer-Oriented Business Operations

On March 30 2017, the FSA published its Principles for Customer-Oriented Business Operators (the Principles), which provide a framework to promote competition among service providers and a sustainable growth of Japan's national wealth.

The Principles also apply to foreign financial service providers operating in Japan and offshore providers providing services to customers in Japan. Whilst no sanctions are imposed for not adopting the Principles, providers are likely to be motivated to adopt them to attract investors.

A service provider which has adopted the Principles must:

(a) set out, publish, and periodically review, a clear policy for customer-oriented business. "[C]ustomers" include not only their direct customers (e.g., asset holders or managers) but also investors and beneficiaries; and

(b) include in their published policy either (i) (if implementing the Principles) the framework for such implementation, or (ii) (if it does not implement the Principles) the reason for not doing so or alternative measures:

  • to maintain high professionalism and ethical standards, provide services with good faith and fairness, pursue customers' best interests, and endeavour to establish a corporate culture of sharing such standards;

  • to identify and control conflicts of interest, and set out policies to manage conflicts;

  • to provide customers with easily understandable details of fees and other costs;

  • to provide customers with important information regarding products and services (including risks and reason for the choice of products or services to offer) in a manner understandable by customers, by considering their experience and knowledge and complexity of the products or services;

  • to offer products or services suitable for the financial status, experience, knowledge, purpose and needs of each customer; ands

  • to design and implement an internal staff motivation and governance systems to pursue the above principles.

Fair Disclosure Rules for Listed Companies

An amendment to the Financial Instruments and Exchange Act was promulgated on May 24 2017 and will come into force one year later (on a date to be specified by the government). The amendment stipulates that when a company listed in Japan provides, in the course of investor relations, securities market analysis or provides investors with unpublished important information regarding the company, that company must publish the information. This amendment follows similar regulations already in place in the US and the EU and is aimed at promoting communication between investors (including foreign investors) and between listed companies based on a broad range of disclosed information.

Revision of Stewardship Code

The Stewardship Code (the Code) is a code established by the FSA in 2014 that applies to institutional investors voting in or communicating with investee companies. The Code, together with the Corporate Governance Code (a code for listed companies) provided by the Tokyo Stock Exchange in 2015, is aimed at promoting communication between institutional investors (as fiduciaries for beneficiaries) and investee companies. Whilst there are no sanctions for not adopting the Code, it has been adopted by more than 200 institutional investors (fund managers, insurance companies, pension funds and voting agents, etc., including foreign asset managers licensed in Japan) as of the end of 2016.

An institutional investor that has adopted the Code must set out, publish and annually review its policy of implementing the principles under the Code (or explain why it does not implement them), including setting out rules regarding conflicts of interest, productive dialogue with investee companies and exercising voting rights from the viewpoint of promoting sustainable growth of investee companies.

On May 29 2017, the FSA published revisions to the Code. The revisions added the following requirements:

  • Asset managers must identify in detail circumstances where conflicts of interest may arise and establish (and publish) measures to manage conflicts.

  • Institutional investors are encouraged to conduct 'collective' communications with investee companies by cooperating with other institutional investors.

  • Disclosure of results of the exercise of voting rights should be provided on an investee and agenda/proposal basis, together with the reasons for voting for or against each proposal.

Fintech is a Driving Force Behind Legal Developments

Open innovation policies, as well as new financial services based on advanced technologies, make government authorities reconsider the existing legal framework and lead to the establishment of new regimes and amendments to existing laws and regulations. Participants in the financial sector in Japan also expect the TMG's measures to achieve the goal of realising a Global Financial Centre.

About the author



Ryuichi Nozaki

Partner, Atsumi & Sakai

London, UK

T: +44 206 696 6540



Ryuichi Nozaki heads Atsumi & Sakai's London office. He specialises in banking, structured finance, financial regulation, fintech and data protection; he is a core member of the firm's fintech team. Nozaki's recent experience includes advising a major global credit brand group on various matters, including settlement systems, mobile settlement businesses and data protection, and a Japanese financial group on establishing a virtual currency exchange.

Nozaki is qualified as an attorney (Bengoshi) in Japan (2000) and holds a law degree from Keio University (1996), and an LLM from Boston University School of Law (2007). His recent awards include being recognised as a IFLR1000 Financial and Corporate 2017 Leading Lawyer for banking, structured finance and securitisation.

About the author



Yuri Suzuki

Partner, Atsumi & Sakai

Tokyo, Japan

T: +813 5501 1184



Yuri Suzuki specialises in banking & finance, financial services regulation, structured finance and capital markets. She is the head of the firm's fintech team and a secretariat of the Fintech Association of Japan. She also serves as a legal advisor to the Japan Blockchain Association, and is an advisor to the MUFG Digital Accelerator Program. She was a member of the Meeting to Discuss the Attraction of Foreign Financial Companies to Tokyo, comprising the Tokyo Metropolitan Government, Financial Services Agency, private enterprises and others in 2016.

Suzuki is qualified as an attorney (Bengoshi) in Japan (2001) and holds a law degree from Waseda University (1997) and an LLM from New York University (2005). She has been a partner at Atsumi & Sakai since 2008. She worked in the Chicago office of Kirkland & Ellis in 2005/6.

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree