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FinTech in Japan: a regulatory framework on the move to support a strong development

The field of money remittance transactions in Japan is expanding and is attracting many overseas companies looking to operate fund transfer and virtual currency exchange businesses. A regulatory framework for FinTech firms in Japan now presents major opportunities and challenges, not just in Japan, but for regulators around the world. To support progress and development in the sector, in December 2016 the FinTech Association in Japan drew together lawyers, consultants as well as representatives of the Credit System Office, Financial Services Agency of Japan, and of the FinTech & Innovation Group, Monetary Authority of Singapore to discuss regulatory trends and ongoing issues in the respective countries.

In Singapore, the set-up of a “Smart financial center” has played a pivotal role in centralizing FinTech-related information by bridging start-ups, experts, and regulators since its establishment. It is now one of the leading countries in the field. In the UK, the standardization of banking Application Programming Interface (API) systems has been proceeded. In addition, the government has ordered banks to open up their API systems by the government. These examples demonstrate how regulators in these countries made significant attempts to facilitate collaboration and competition through policy making.

In the case of Japan, with the burgeoning demand for FinTech services, the Japanese Financial Services Agency launched a FinTech Support Desk in December 2015. The support desk provides consultation for those who are or are going to be engaged in FinTech businesses, contributing to creating an environment in which start-ups and experts gather and discuss issues, as well as various possibilities to modify current regulation.

It is worth noting that a significant number of laws have been recently revised and promulgated in Japan. For example, payment methods through virtual currency have been widely developed. To cope with the rapid changes in payment services, a revised Bank Act was enacted on 25 May 2016 and promulgated on 3 June 2016. The revision of the Bank Act will take effect in 2017, which will allow for investment in IT companies in a more flexible manner. Through this revision, the supervisory authority will enable banks to expand their FinTech capabilities.

Many countries have been tackling similar issues; such as the cost/accessibility of the API system, the ownership of the data that banks keep (e.g., accounts, cash balance), and cybersecurity. With the likelihood that the growth of FinTech will further accelerate in 2017, a proactive role on the part of the regulators is indispensable for the establishment of a robust infrastructure and ecosystem.

In the light of such developments, it is important therefore that overseas companies looking to operate fund transfer and virtual currency exchange businesses in Japan are completely clear on the application process for necessary licenses associated with respective businesses, including the requirement to submit a number of documents by consulting with regulators.

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