Under Japanese law, only entities that have obtained a bank license under the Banking Act of Japan or have been registered as a fund transfer service (FTS) provider under the Payment Services Act of Japan (PSA) are permitted to provide FTS. The PSA was enacted in 2009 and allowed registered providers to engage in FTS subject to an upper limit of ¥1 million (approximately $9,130) per transfer.
Since it is difficult to obtain a bank license in Japan and banking regulations are relatively strict, there have been requests since the PSA came into force to abolish the upper limit for FTS providers. In response, on June 5 2020, the Japanese Diet passed a bill to amend the PSA for the purpose of revising the current regulatory framework for payment and settlement (Amendment). The Amendment entered into force on May 1 2021. The Amendment introduced a risk-based approach to regulating FTS by adding the following two types of FTS registrations:
- Type I FTS providers, which are allowed to transfer amounts exceeding ¥1 million but, in addition to registration, must receive approval of their business plans; and
- Type III FTS providers, which are only allowed to transfer amounts below ¥50,000 and must take measures to establish a flexible customer fund protection scheme.
Both Type I FTS and Type III FTS providers will be subject to stricter regulations on retention of monies. Due to the introduction of new types of FTS providers, the current FTS providers with an upper limit of ¥1 million will be categorised as Type II FTS providers. Regulations on Type II FTS providers will, in principle, remain unchanged (except for certain revisions to the current regulations).
The following table outlines the regulations that are applicable to each type of FTS under the amended PSA.
Restrictions on retention of monies
Method to protect in-transit money
Registration and approval of business plan
Stricter regulations (e.g. prohibited from accepting monies for a period longer than necessary for the fund transfer)
Requirement to protect in-transit money by way of statutory deposit, bank guarantee or trust agreement
¥1 million per transfer
Existing regulations (e.g. required to take measures to prevent retention of monies unrelated to the fund transfer)
¥50,000 per transfer
Stricter regulations (e.g. prohibited from retaining monies exceeding ¥50,000 for each customer)
Flexible customer fund protection scheme: instead of statutory deposit, bank guarantee or trust agreement, simple deposit in a segregated bank account is sufficient
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