18 July, 2016
Proposed amendment of the Japanese banking laws, payment service laws and other related legislation to boost the fintech sector in Japan
On 4 March 2016, a Bill amending the Japanese Banking Act and other related laws was submitted to the Diet (Nippon-koku no Kokkai). The Bill, which seeks to remove regulatory hurdles to investment in the fintech sector and is in response to developments in this area, is expected to be considered by the Diet by the end of June 2016 and to be enforced within one year from its promulgation.
Key parts of the Bill include:
Facilitating investment by banks in the non-financial sector
The Bill amends the Japanese Banking Act to make it easier for Japanese banks to invest in non-financial companies by easing previous restrictions in relation to acquiring stakes. Previously, Japanese banks could not own more than a 5-15 per cent stake in non-financial companies. The Bill also expands the list of businesses that a subsidiary of a bank is able to engage so as to include a business that will enhance, or is expected to enhance, the sophistication of its banking business or for the convenience of its customers.
Facilitating a receiving order of the bank's subsidiary from companies outside its group
The Bill amends the requirement for a bank's subsidiary engaging in the bank's ancillary business to earn not less than 50 per cent of its income from its parent bank by making it easier for a subsidiary to receive an order related to outsourced work from companies outside of its parent banking group.
Registration requirement for virtual currency exchange business
The legal nature of virtual currency is unclear under current rules, and a virtual currency is not viewed as a legal currency and not required to obtain a licence under the relevant rules to engage in the business. The Bill imposes registration requirements and other regulatory obligations on an entity engaging in virtual currency exchange. The Bill defines a virtual currency and the definition of a virtual exchange business includes a business that engages in the sale of virtual currency or exchange of virtual currency with other virtual currency, and an intermediary, brokerage or agency services in relation to such services.
A virtual currency exchange operator registered under the Japanese Payment Service Act will be required to take necessary measures to safeguard information, protect customers' interests, and to manage customers' assets separately from its own assets (its asset management should be audited periodically by certified public accountants or an audit firm). The details of these requirements will be described in the regulation, ordinance and guidelines for their enforcement.
In addition, a virtual currency exchange business operator should be subject to requirements such as preparing book accounts and business reports, and to submit such business reports audited by certified public accountants or an audit firm.
Furthermore, a registered virtual currency exchange business operator is required to take the necessary procedures to prevent Anti-Money Laundering under the Act on Prevention of Transfer of Criminal Proceeds of Japan. These include: (i) compliance with the KYC Procedure; (ii) preparing and keeping KYC documents; (iii) creating and keeping transaction documents; and (iv) confirming required items when entering into transactions with its customers.
For further information, please contact:
Kensuke Inoue, Partner, Ashurst
kensuke.inoue@ashurst.com
