Japan: Banking & Finance

The Financial Services Agency of Japan (FSA) is the national authority for banking regulation and supervision of banks, whose authority is delegated by the prime minister of Japan under the Banking Act. The FSA issues banking licenses, publishes its supervisory guidelines, and imposes administrative dispositions (e.g. business improvement orders, orders to suspend a bank’s operations, and revocation orders of banking licenses of banks) on problematic banks.

On-site Inspections in relation to security-related services of banks are performed by the Securities and Exchange Surveillance Commission of Japan.

In the event of the resolution of banks, the Deposit Insurance Corporation of Japan (DICJ) takes a significant role. The Deposit Insurance Act provides that the prime minister may appoint the DICJ as a financial administrator, who will manage the assets and the business of the failed bank. Also, in order to ensure financial system stability, the prime minister may authorize the DICJ to perform Special Monitoring on banks.

The Banking Act prohibits a person from conducting Banking Business without a banking license. “Banking Business” refers to: (i) (a) taking deposits, and (b) lending funds; or (ii) conducting exchange transfers (kawase torihiki). Conducting lending without taking deposits does not require a banking license, but it will trigger the money lending license requirement under the Money Lending Business Act unless the lender can rely on certain exceptions.

The Banking Act does not provide the definition of “exchange transfers.” Typically, providing a fund transfer service constitutes “conducting exchange transfers” and requires a banking license unless permitted under the Payment Services Act as stated below in No.3.

As stated in No. 2 above, the Payment Service Act provides different licenses for fund transfers, which enables a person to engage in fund transfer services under a less restrictive regulation compared to the Banking Act. Under the Payment Services Act, there are three types of licenses (Type 1 Funds Transfer Service, Type 2 Funds Transfer Service and Type 3 Funds Transfer Service) depending on the size of transfers which the Funds Transfer Service Provider can handle. While there is no upper limit for fund transfers by a Type 1 Funds Transfer Service Provider, fund transfers by a Type 2 Funds Transfer Service Provider shall not exceed one (1) million JPY per transaction, and fund transfers by a Type 3 Funds Transfer Service Provider shall not exceed fifty (50) thousand JPY.

Security related services are regulated by the Financial Instruments and Exchange Act (the “FIEA”). In order to engage in security-related services, a license (registration) as a Financial Instruments Business Operator is required. Banks may engage in security-related services if they are registered as “Registered Financial Institutions” pursuant to the FIEA.

Basically, a banking license does not automatically permit other licensable activities. That said, since conducting exchange transfers constitutes Banking Business, banks can provide payment services without other licenses. Similarly, banks can engage in lending without a Money Lending Business license. In order to engage in other licensable activities, the relevant license is required. As stated above in No. 3, banks may engage in security-related services including dealing with government bonds, unit trusts and derivative transactions if they are registered as “Registered Financial Institutions” under the FIEA. Banks are not permitted to conduct certain securities business including the underwriting of corporate bonds and shares.

Issuance of e-money requires a license under the Payment Service, if (i) users are required to pre-pay money in exchange for the issuance of e-money, and (ii) e-money will be used for the payment of goods and services. This license requirement is also applicable to banks.

As stated in No. 3 above, the Payment Service Act provides different licenses for fund transfers, which enable a person to provide fund transfer services under a less restrictive regulation compared to the Banking Act.

The government of Japan introduced a project-based regulatory sandbox framework in June 2018 to promote innovative technologies and business models. Under this regulatory sandbox framework, organizations and companies both in and outside Japan can apply to demonstrate and experiment with limited time periods without complying with existing Japanese regulations to certain extent. This framework covers regulations on financial services, the healthcare industry, mobility and transportation. The FSA will process the application and monitor the testing projects in the financial services sector. The data to be collected through the demonstration of testing projects would be used by the FSA to consider the necessity of deliberation of regulatory reform.

An issuance of the crypto assets is categorized as a sale of the crypto currencies under the Payment Services Act. The sale of the crypto assets or exchange of crypto assets with other type of the crypto assets requires the crypto-asset exchange services license under the Payment Service Act. The custody service of the crypto assets is also included in the crypto-asset exchange services under the Payment Services Act, and therefore also requires the crypto-asset exchange services license.

If the crypto assets are categorized as security token, the brokerage and trading of the security token is regulated under the Financial Instrument Exchange Act. In respect of the security token which has high liquidity, the disclosure rules under the FIEA are applicable to the offering of the security token. The licensing requirements under the FIEA will also apply to the broker-dealer of the derivative transactions in which the underlying assets are the crypto assets or to the investment manager in which the target assets of the investment management services include the crypto assets.

The Payment Service Act has amended in 2022. The amended law newly defines the stable coin as “electrical payment means” (denshi kessai-shudan) which is issued in the form of electric currency or trust beneficiary interest with value linked with the legal currency and will be reimbursed with the issue price. Any person engages in the sales of, exchange with, or providing custody services of the electrical payment means requires an electrical payment means services license. The 2022 amended Payment Service Act will be enforced on the date on or before June 9, 2023 to be designated by the Japanese government.

The security Token or the Crypto Assets are not qualified as deposits. They are not categorized as deposit, etc. as defined in Deposit Insurance Law of Japan, and as a result, are not insured by the deposit insurance. The segregation requirements are applied to the custody of the security token or the crypto assets under the Payment Services Act or the FIEA respectively.

The capital requirement of the crypto-asset exchange service provider is JPY 10 million. The crypto-asset exchange services provider may not become the net asset deficit. The capital requirement will be imposed on the electrical payment means service providers. The amount of the capital has not been released as of the early February 2023.

The application process for a bank business license basically takes the following three steps: (1) preliminary consultation, (2) preliminary examination (yobi-shinsa); and (3) formal application for the banking license. In the preliminary consultation stage, the applicant engages in informal discussions with the regulator and performs preparations towards the application for the preliminary examination. Since the preliminary consultation is not a formal procedure provided for in the Banking Act, there is no standard processing time and it often takes one year or more. The preliminary examination can be applied by filing the full package of the application documents. The regulator will conduct a substantial examination on whether the applicant satisfies the requirements for the banking license in this step. The Banking Act does not specify the standard processing time for the preliminary examination, but it is said that this procedure often takes 3 – 6 months. The formal application will be made after the completion of the preliminary examination. According to the Banking Act, the standard processing time is less than a month.

A foreign bank is not permitted to engage in banking business in Japan unless its branch office is licensed as a foreign bank or the foreign bank is acting through a foreign bank agency pursuant to the Banking Act. Under a foreign bank agency framework, a foreign bank agent which must be licensed with the FSA may provide agency or intermediary services to foreign banks.

The Banking Act neither prohibits nor expressly imposes any requirement for FSA-licensed banks to engage in cross-border activities. However, if a bank intends to establish, change the type of or abolish a branch office of the bank in a foreign country, it must obtain an authorization (ninka) from the regulator. In addition, if a bank intends to establish a representative office in a foreign country, it must file a notification with the regulator.

A bank must be a kabushiki-kaisha, which is joint-stock corporation established under the Corporate Act of Japan, which is similar to a “C-corporation.” A branch office of a foreign bank may also apply for a banking business license.

A bank must have the following internal organizations:

1. board of directors;
2. any one of the following:
   1. board of statutory auditors (kansa-yakkai);
   2. audit and supervisory committee (kansa-tou iinkai); or
   3. nominating committee, audit committee and compensation committee; and
3. accounting auditor.

The FSA Supervisory Guidelines for Major Banks require international operating banks to implement sound compensation practices, including the establishment of an individual committee or other internal organization to oversee the compensation system’s design and operation and to monitor and review the compensation system to ensure that the compensation scheme will not grant incentives toward excessive risk taking. The compensation scheme should take into account the risks that employees take on behalf of the banks. In addition, staff engaged in financial and risk control must be compensated in a manner that is independent of the business areas they oversee and commensurate with their key roles. In addtion, under the Banking Act, banks are required to disclose their remuneration policies and other matters. The FSA regulary and continuously engages in monitoring the implementation of sound compensation practices by banks.

The Banking Act requires international operating banks to maintain at a minimum, on both a consolidated and unconsolidated basis: (i) a common equity Tier I ratio of 4.5%; (ii) Tier I ratio of 6.0%; and (iii) a capital adequacy ratio of 8.0%. As from 2010, the FSA has implemented several revisions to the capital adequacy requirements under the Banking Act in line with the implementation of Basel III. For example, the FSA has: (a) increased the requirements for the ratio of the high total loss-absorbing capacity capital and introduced a capital conservation buffer; (b) introduced a liquidity coverage ratio and revised the disclosure requirements and the treatment of securitization transactions; and (c) thoroughly revised capital requirements for the trading book, and made final reviews of the risk measurement methods. The FSA is introducing the Basel III final reforms.

In response to the Basel III finalized post-crisis reforms, the FSA has implemented a leverage ratio requirement, effective as of March 31, 2019, which is a minimum of 3% on a consolidated or unconsolidated basis. The disclosure requirement of the leverage ratio has already come into force as of March 2015.

The LCR ministerial notification (kokuji) under the Banking Act which accommodates the Basel III liquidity requirements came into force in March 2015. The regulations require international operating banks to maintain the minimum LCR provided in the ministerial notification (kokuji), which was 60% in 2015, has been increased by 10% each year, and is currently 100%.

In response to the final standard for the Net Stable Funding Ratio in October 2014 and the final Net Stable Funding Ratio disclosure standards in June 2015, the FSA has prepared the draft of the NSFR regulations and the new regulations were scheduled to come into force on March 31, 2019, but this has now been postponed and the FSA has not yet announced the enforcement date.

Banks are required to publish their financial statements pursuant to the Banking Act and the Ordinance for Enforcement of the Banking Act. Banks are required to publish their financial statements on a semi-annual basis pursuant thereto. Additionally, banks are required to publish their financial statements in accordance with the Company Law, the Financial Instruments and Exchange Act (FIEA), the Corporate Tax Law and other accounting standards. Among others, listed banks on a stock exchange are required to publish their financial statements on a quarterly basis and they are subject to public disclosure on EDINET (Electronic Disclosure for Investors’ NETwork) operated by the FSA pursuant to the FIEA.

The FSA supervises a bank’s holding companies, major shareholders, and consolidated subsidiaries under the Banking Act.

Any person who intends to become a holding company (a company whose value of shareholding in subsidiary companies in Japan exceeds 50% of the value of its total assets) of a bank must obtain prior authorization from the FSA to be a “bank holding company.”

Similarly, as mentioned in No. 19 below, major shareholders of a bank must obtain prior authorization from the FSA.

The FSA has the authority to (i) order bank holding companies, major shareholders, and consolidated subsidiaries to submit reports on the business and property of the banks, (ii) conduct on-site monitoring or inspection on these entities, and (iii) impose administrative dispositions on bank holding companies and major shareholders.

There is both reporting and approval requirements for the acquisition of voting rights in a bank.

A person who acquired voting rights in a bank or a bank holding company that exceeds 5% of all the voting rights in that entity must submit a report to the FSA within five (5) days of the acquisition. After this submission, if there is an increase or decrease of its possession by 1% or more, such person must submit a report of the change within five (5) days of the change.

A person who intends to become a major shareholder of a bank must obtain prior authorization from the FSA. A major shareholder is a shareholder who holds voting rights of 20% or more of the bank. This 20% threshold shall be lowered to 15% if the shareholder is able to exert a material impact on the financial and operational or business policy decisions of the bank.

As stated in No. 16, a person who intends to become a holding company (a company whose value of shareholding in subsidiary companies in Japan exceeds 50% of the value of its total assets) of a bank must obtain prior authorization from the FSA to be a “bank holding company.”

Upon the authorization of a major shareholder, the FSA shall examine whether the following requirements are satisfied: (i) there shall be no risk of impairment of sound and appropriate management of the business of the bank in light of (a) the particulars of funds for the acquisition and the purpose of holding the voting rights, and (b) the status of property and income and expenditure of the shareholder, and (iii) the shareholder has sufficient understanding of the public nature of the business of the bank and has sufficient social credibility.

Similarly, upon the authorization of a bank holding company, the FSA shall examine whether the following requirements are satisfied: (i) the person who intends to be a bank holding company (the “Applicant”) has good prospects for the balancing of income and expenditure; (ii) the adequacy of equity capital of the Applicant must be appropriate in light of the assets owned by them; and (iii) in light of its personnel structure, the Applicant shall have the knowledge and experience that will enable the Applicant to carry out the business management of its subsidiary bank appropriately and fairly and must have sufficient social credibility.

There are no specific restrictions on foreign ownership in banks. On the other hand, the acquisition of shares in Japanese banks by foreign investors is restricted to a certain extent under the Foreign Exchange and Foreign Trade Act. In cases where (a) shares in Japanese banks have been acquired by the parent company as a foreign corporation, and (b) a seller is a resident of Japan, in principle, a post facto notification regarding direct inward investment is required to be filed with the Bank of Japan by the parent company by the 15th day of the month following the month of acquisition of all or part of the shares in Japanese banks (Articles 26 and 55-5, Paragraph 1 of the Foreign Exchange and Foreign Trade Act); however, prior-notification under Foreign Exchange and Foreign Trade Act is required if the party intends to acquire the shares in certain banks running the designated business sectors, such as the Bank of Japan, agricultural cooperatives, fisheries cooperatives, and marine product processing cooperatives as listed in Appended Table 2 (Article 27, Paragraph 1 of the Foreign Exchange and Foreign Trade Act) before the acquisition of shares in such banks.

The FSA has designated (i) three G-SIBs (globally systemically important banks) and (ii) four D-SIBs (domestic systemically important banks) in 2015. G-SIBs and D-SIBs are subject to heightened capital adequacy requirements under the FSA ministerial notification (kokuji) on capital adequacy rules (so-called “pillar 1 notices”).

G-SIBs and D-SIBs are required to create and submit their recovery and resolution plans to the FSA. The FSA has also designated G-SIBs and one of the D-SIBs as entities which should comply with TLAC requirements.

FSA may order a bank to take remedial measures, suspend all or part of its business, deposit its assets, or take other necessary measures to ensure the bank’s sound and appropriate operation. If a bank violates the Banking Act or any other relevant laws, in the case of a relatively serious violation, the FSA will order the bank to suspend all or part of its business; in the case of an extremely serious violation, the FSA may revoke the bank’s banking license (Article 27, Paragraph 1 of the Banking Act). The FSA may also issue a notification or an order for improvement of business operations (Article 52-55 of the Banking Act).

In addition, those who violate the Banking Act may be punished with imprisonment, criminal fines or administrative fines (Articles 61 to 66 of the Banking Act)

The details of the orders for rescission of licenses, suspension of business and notifications, etc. issued by the FSA are publicly announced on the FSA’s website from time to time.

Taking into account international trends, such as the report entitled “Key Attributes of Effective Resolution Regimes for Financial Institutions” prepared by the Financial Stability Board (FSB) and adopted at the G20 Cannes Summit (November 2011), the following system was established as the resolution regime under the Act for Partial Revision of the Financial Instruments and Exchange Act, etc. enacted on June 12, 2013, in order to respond not only to non-performing loan-type financial crises but also to market-type financial crises represented by the Lehman Shock.

When the Prime Minister finds that, if the “resolution” measures are not taken, it may cause severe disruption in Japan’s financial market and any other financial systems, the Financial Crisis Response Council (Members: Prime Minister, Chief Cabinet Secretary, Minister of State for Financial Services, Minister of Finance, Governor of the Bank of Japan, and Commissioner of the Financial Services Agency), may certify the need to take such “resolution” measures toward financial institutions, etc. (“Specified Certification”) (Article 126-2, Paragraph 1 of Deposit Insurance Act).

1. As to financial institutions which are not insolvent (saimu chouka), measures involving (a) special monitoring, (b) extension of loans, etc., and (c) subscription for specified shares, etc. may be taken (tokutei 1 gou sochi).
2. As to financial institutions which are insolvent, have suspended payments or are likely to become insolvent or suspend payments, measures involving (a) special monitoring and (b) specified financial assistance may be taken (tokutei 2 gou sochi).

In addition, before the introduction of the above resolution measures, financial stabilization measures against financial crises with respect to depository financial institutions have already been introduced in Japan, as stipulated in Article 102 of the Deposit Insurance Act.

When the Prime Minister finds that, if the measures specified in each of the following items are not taken with respect to the Financial Institution specified in each respective item, this may extremely seriously hinder the maintenance of an orderly credit system in Japan or in a certain region where the relevant Financial Institution conducts its business, the Prime Minister may, following deliberation by a council for financial crises, certify the need to take such steps, and may pursue the following measures:

1. The subscription for shares, etc. of the relevant financial institution for the purpose of satisfying the equity capital adequacy of the Financial Institution (1 gou sochi).
2. As to bankrupt or insolvent financial institutions, financial assistance for an amount that is expected to exceed the expected costs for the payment of insurance proceeds with respect to an insured event of such financial institution (2 gou sochi).
3. As to banks, etc. falling under bankrupt financial institutions that are unable to satisfy their obligations in full by their assets, the measures prescribed in Articles 111 through 119 of the Deposit Insurance Act (3 gou sochi).

Financial institutions in Japan are required to join the deposit insurance system. The deposit insurance system means that if a financial institution fails, current deposits and non-interest-bearing ordinary deposits, etc. (deposits for payment and settlement purposes) will be fully protected, as to fixed deposits and interest-bearing ordinary deposits, etc. (general deposits, etc.), the total for each financial institution, up to a principal amount of 10 million yen and interest up to the date of failure per depositor will be protected (Article 54, 54-2 of the Deposit Insurance Act).

On the other hand, deposit amounts exceeding 10 million yen of principal and interest, other than insured deposits (deposits, etc. protected by deposit insurance) and deposits for payment and settlement purposes, etc., and deposits that are not covered by the deposit insurance system, will be paid depending on the status of the assets of the failed financial institution, and may be partially cut off.

The Financial Stability Board (FSB) has stipulated a bail-in tool as an international rule to avoid measures requiring the spending of public funds for bank remedies. Considering this international trend, the Deposit Insurance Act was amended in June 2013 to incorporate the concept of bail-in in Japan. However, the Deposit Insurance Act, which was amended in 2013, still requires bail-outs through the injection of public funds.

The bail-in system can be categorized as (i) a statutory bail-in approach, which means a bail-in enforced under the authority of the resolution authorities in the event of a financial strain, and (ii) a contractual bail-in approach, which means, in order to qualify for Tier I or Tier II in maintaining Basel III capital adequacy, it is required that Tier I Capital Instruments and Tier II Capital Instruments be issued based on a contractual agreement under which such instruments must be written off or converted to common equities, in order to protect important debts in a financial system, such as deposits, if the supervisory authority finds the entity to be substantially bankrupt. Such contractual bail-in approach was incorporated into the amended Deposit Insurance Act (Article 102 of the Deposit Insurance Act) and its ministerial notification (kokuji) (see the Standards for Determining Whether the Status of Capital Adequacy is Appropriate in Light of the Assets, etc. Held by Banks pursuant to Article 14-2 of the Banking Act).

In Japan, while a statutory bail-in approach as above has not been introduced, contractual bail-in approach has been introduced under which important debts in the financial system will be transferred to bridge banks and protected; however, other bankrupt financial institutions that have remaining debts and equities are subject to bankruptcy law. In such event, the insured deposits and the like are protected by deposit insurance, etc.; however, other debts and equities will be resolved by the court’s bankruptcy procedure, so losses will be borne by such creditor and equity investors under such procedure. In the event of such bankruptcy, contractual bail-in instruments will be written off or converted to common equities.

Such bail-in is only applicable to insolvent financial institutions and does not apply to financial institutions with excessive LCRs (see Article 29-2-2 of the Ordinance for Enforcement of the Deposit Insurance Act）.

In Japan, a ministerial notification (kokuji) has been enacted for the domestic application of the TLAC regulations which came into effect on March 31, 2019. Additionally, the FSA issued its supervisory guidelines etc. pertaining to TLAC on March 15, 2019.

The ministerial notification system regarding TLAC is based on the FSB’s TLAC standard as a minimum external TLAC standard and it has established two standards as follows: (1) “external TLAC risk-asset based ratio”, which is calculated by the risk-asset based ratio, and (2) “external TLAC total leverage exposure-based ratio”, which is the denominator of the leverage ratio. Based on the above, in relation to the three Japanese megabanks, minimum requirements are stipulated as 16% based on the risk-asset based ratio and 6% based on the total exposure-based ratio from the end of March 2019, and 18% and 6.75% from the end of March 2022, being three years from the commencement of application (Article 1 and Exhibit of “Standards for determining management soundness in relation to TLAC and recapitalization capacity as determined for the standards for a bank holding company to determine the management soundness of it and its subsidiary companies pursuant to Article 52-25 of the Banking Act and reference for determining the management soundness of banks”).　Regime currently desiginates (i) Mitsubishi Financial Group (Minimum Capital Requirements Ratio: 1.5%), Mizuho Financial Group (Minimum Capital Requirements Ratio: 1.0%) and Mitsui Sumitomo Fiancinal Group (Minimum Capital Requirements Ratio: 1.0%) as globally systemic banks (G-SIBs) based on the selection by FSB and (ii) Mitsui Sumitomo Trust Holdings (Minimum Capital Requirements Ratio: 0.5%), Norin Chukin Bank (Minimum Capital Requirements Ratio: 0.5%), Daiwa Securities Group Headquarter (Minimum Capital Requirements Ratio: 0.5%) and Nomura Holdings (Minimum Capital Requirements Ratio: 0.5%) as Domestic Systemically Important Banks (D-SIBs). As shown in the above description, G-SIBs banks are imposed relatively higher minimum capiutal requirements ratio than D-SIBs banks.

1. Amendment relating to Banking Act

As for banks, the scope of their business has been limited to operations centering on the banking business. The main reason for this is that it is necessary for banks to maintain a basis for stable management, and if banks engage in other businesses, there is a risk that their basis for stable management will be threatened. Recently, in Japan, due to the need for digital transformation (DX) and regional revitalization, there has been a demand for relaxation of restrictions on the bask’s scope of business. The Amendment to the Banking Act established on May 19, 2021 and effective in November 22, 2021 (a) expands the ancillary business that banks are permitted to carry out, (b) expands the business conducted by company enhansing banking business etc., (c) deregulates investment regulations and (d) expands the scope of business of foreign subsidiaries and foreign sister companies.

With regard to the expansion of bank’s ancillary business described in (a), business related to the contribution to a sustainable society, such as digitalization and regional revitalization, which utilize the management resources of the banking business conducted by the bank itself, has been newly added to bank’s ancillary business (Article 10, Paragraph 2, Item 21 of the Banking Act). Further, with regard to the expansion of the scope of business of foreign subsidiaries and foreign sister companies described in (d), foreign companies engaged in general business can be acquired by banks in principle even before the amendment of the Banking Act in 2021, however, they must be sold by banks within five years. After the amendment of Banking Act in 2021, foreign company can be subsidiaries of banks for 10 years regardless of the scope of business of foreign company (related to Article 16-2, Paragraph 6 of the Banking Act), and if local competition is necessary, upon receiving approval, it became possible to continue to be a subsidiary (related to Article 16-2, Paragraphs 8 and 9 of the Banking Act).

2. Amendment relating to Payment Services Act

Fund settlements conducted by financial institutions are currently regulated by the Payment Services Act. In this regard, the Payment Services Act regulates (a) funds transfer service providers, (b) prepaid payment means, (c) crypto asset exchange and (d) clearing for funds transfer transactions.

In connection with to funds transfer service providers, only businesses that handle remittances of 1 million yen or less are permitted before the amendment of the Payment Services Act in May 2021. By the amendment of Payment Services Act, it categorizes funds transfer service providers into three types, Type 1 funds transfer service, Type 2 funds transfer service and Type 3 funds transfer service: such three types of licenses are depending on the size of transfers which the funds transfer service provider can handle. While there is no upper limit for fund transfers by a Type 1 funds transfer service provider, fund transfers by a Type 2 funds transfer service provider shall, provided that the size of the transfer does not exceed one (1) million JPY per transaction, and fund transfers by a Type 3 funds transfer service provider shall not exceed fifty (50) thousand JPY.

Furthermore, amendment to the Payment Services Act enacted on June 3, 2022, and will come into force within one year from the publication of such amendment. Such amendment envisages (a) amentment for establishing methods for high-amount electronically transferable prepaid payment, (b) amendment to the definition of “electrical payment means” (denshi kessai-shudan) (amendment relating to so-called stablecoins), and (c) establishment of system of joint monitoring of transactions by banks, etc..

Regarding (a), new definition, methods for “high-amount electronically transferable prepaid payment” is provided under the Payment Service Act, wihch requires the issuer to make a notificatiojn of a business implementation plan (Article 11-2 of the Payment Services Act). It was also decided that such issuer is to be a specified business operator under Criminal Proceeds Transfer Prevention Law (Article 2, Paragraph, Item 30-2 of Criminal Proceeds Transfer Prevention Law).

In connection with (b), “issuance of coins” will fall under “exchange transactions” (business related to the transfer of funds) pursuant to the amended Payment Services Act, so it can only be performed by banks and funds transfer service providers. Further, regarding stablecoins issued overseas, interpretation of handling of such stablecoins under the Payment Services Act will be clarified, and new business regulations have been added to the act of intermediating stablecoin transactions.

With regard to (c), there is an international demand for higher standards of transaction monitoring, such as AML, by banks. The amended Payment Services Act stipulates an exchange transaction analysis business that jointly conducts transaction monitoring and transaction filtering related to exchange transactions by subcontracting from financial institutions. The amended Payment Services Act introduces a license system for exchange transaction analysis business operators under supervision and inspections by the FSA in order to ensure the quality of their services.

Japanese banks have been suffering from a lower interest margin on their commercial loans due to the central bank’s zero interest rate and quantitative easing policies. The prolonged period of these policies is still placing pressure on Japanese banks’ overall earnings. In respect of regional banks, the FSA has requested them to “Build a sustainable business model”. As a background to such request, there are shrinking local economies due to a decrease in the population and the number of companies in local cities and towns. Realignment and business integrations have been accelerating among regional banks for the purpose of efficiency of management and diversification. Among others, it is particularly requested that regional banks diversify their profit areas such as commission revenue. The introduction of artificial intelligence (AI) and fintech are also seen as being important to regional banks.