On April 1 2010, the Payment Services Act (Act No. 59 of 2009) came into effect in Japan. Notably, the Act provides non-bank entities with opportunities to engage in funds transfer transactions (kawase-torihiki) (ie, transactions to transfer funds from one person to another remotely without any physical delivery of cash) under certain conditions. Because the exact meaning of funds transfer transactions is somewhat ambiguous, attention must be paid to the scope of this term.
Before the Act came into effect, only licensed banking institutions were permitted to engage in funds transfer transactions pursuant to the Banking Act of Japan (Act No. 59 of 1981). Accordingly, non-bank entities wishing to engage in such transactions, even where such entities did not intend to engage in other businesses typical of banks (such as accepting deposits and extending loans), were required to obtain a banking licence.
Since the Act came into effect, however, non-bank entities registered under the Act as funds transfer service providers (shikin-ido-gyo-sha) have been permitted to conduct funds transfer services; provided, that the funds transferred per transaction are equivalent to or lower than the amount specified by law. Under the Act, funds transfer transaction businesses that fall within such limitations are defined as funds transfer services (shikin-ido-gyo). One important aspect of the Act is that it allows fund transfer service providers to engage in fund transfer transactions with fewer restrictions than banks.
Unlike banks, which are subject to severe restrictions on the types of businesses they may operate under the Banking Act, the Act provides no explicit restriction on the types of businesses funds transfer service providers may operate. In addition, whereas banks are restricted from doing so with few exceptions, funds transfer service providers may hold shares and may even be the parent company of other companies.
Furthermore, funds transfer service providers are not restricted from delegating their funds transfer service business activities to third parties, so long as they remain liable for the operations of such agents. This aspect of the Act enables funds transfer service providers to create new business. For example, companies that operate internet businesses may now also operate monetary remittance businesses, which would allow various new types of monetary remittance business operations to develop in Japan.
On the other hand, given that the Banking Act and the Act do not define exactly what constitutes funds transfer transactions, non-bank entities that are not registered under the Act should be mindful of recent discussions regarding the scope of such transactions. It should be noted that such discussions were had in the context of law making and creating governmental and ministerial ordinances and guidelines for the Act. For example, according to the view of the Financial Services Agency, provided in response to a public comment on the above described ordinances, companies that issue traveller's cheques or E-money cards (ie, cards that are functionally similar to traveller's cheques and allow the user to withdraw foreign currency from ATMs in foreign countries) must be registered as funds transfer service providers or licensed as banks. Thus, in spite of these discussions, it is still undetermined whether certain types of monetary remittance businesses are deemed funds transfer transactions. As a result, non-bank entities that operate certain types of monetary remittance businesses are unable to easily determine whether or not they need to be registered as a funds transfer service provider. Such uncertainty could impede the development of new monetary remittance businesses in Japan.
Hideaki Suda and Takashi Itokawa