Japan: Amending the Money Lending Business Act

Nao Ohira

The Financial Services Agency of Japan published proposed amendments (the Amendments) and started to accept public comments, to ordinances and other legislation relating to the Money Lending Business Act, on January 27 2014. The purpose of the Amendments is to exclude (under certain conditions) restrictions imposed by the Money Lending Business Act (the Regulations) in cases where a company makes a loan to another company belonging to the same group, and also in cases where an investor who owns shares in a joint venture business makes a loan to such business.

Under the Money Lending Business Act, a person who intends to engage in a money lending business must be registered with the relevant government authority, satisfy strict conditions and abide by various regulations.

Under the existing Money Lending Business Act, there are very few exemptions relating to loans made among group companies. However, recently, cash management systems within company groups have become highly developed and sophisticated and there has been growing concern that the existing Regulations may pose an obstacle to building such cash management systems. Also, there are no exemptions relating to loans made by an investor that owns shares in a joint venture company to such company. It has therefore been pointed out that the existing Regulations do not meet the demands of joint venture companies.

In order to resolve these problems, the Amendment firstly exempts loans among companies which belong to the same group of companies consisting of a parent company and subsidiaries (that is, an entity whose business and financial management is determined by the parent company, including, but not limited to, a company whose parent company owns a majority of the voting rights). Secondly, loans which satisfy the following requirements are exempt from the Regulations: (i) the lender is a shareholder of a joint venture company and has 20% or more of the voting rights of the joint venture company; and (ii) the loan is made with the consensus of all the shareholders.

Please note that the Amendments are going through the public consultation stage, and have not yet come into force as of February 2014. However, it will be a significant step for the resolution of the problems set out above.

Nao Ohira

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