Fintech Regulation in Japan

Over the past several years, Japan’s financial sector has been making major strides in fintech innovation, with undisputed leaders here being cryptoasset service providers, cash-free payment services, robo-advisors & crowdfunders. So, let’s take a look at what the driving force behind the fintech revolution in Japan is & how fintech businesses in Japan get regulated.

Legislative Framework & Regulators

As far as regulation of fintech services & products in Japan is concerned, the FSA is, undoubtedly, the number one regulator. Another regulatory authority, called METI, is entrusted with regulating specific payment services, some of which include bank cards & other forms of advanced payment systems.

According to the FIEA, concluding deals with collective investment schemes that involve derivatives & securities is denoted as a ‘business involving operations with financial instruments’ and, therefore, requires a registration.

Pursuant to the Lending Act, no operations with deposits are authorized without getting a banking license in Japan. There are no licensing requirements for operations involving foreign currencies; however, some transactions with currency derivatives are considered “business involving operations with financial instruments" and, therefore, require registering  financial companies in Japan.

Registering AIFs in Japan

There’s no regulation of the activities of AIF managers in Japan. Under the FIEA, AIF managers are authorized to manage the following types of funds:

• PEFs;
• REFs;
• hedge funds.

AIF managers’ operations get regulated similarly to those of mutual fund managers, which means that they aren’t governed by any extended rules. However, under some laws, AIF managers may be required to seek registration.

Registering Crowdfunding Platforms in Japan

Crowdfunding is divided into several categories in Japan. They are:

• investment-based crowdfunding;
• reward-based crowdfunding;
• donation-based crowdfunding.

In its turn, investment-based crowdfunding is categorized into social lending, stock-based & fund-based crowdfunding.

Being one of the most popular form of crowdfunding in Japan, reward-based crowdfunding involves concluding a contract for the sale of rewards. Activities like this do not fall under the FIEA regulation; however, certain provisions of the Commercial Transactions Act may apply to them.

Providing Financial Services in the State of Japan

Conducting financial services requires getting a banking license in Japan. Licensed non-banking organizations are allowed to carry out money transfer operations, providing that the sum of a transaction doesn’t exceed one million yenas.

If an organization is involved in money transfer operations, then it may have to apply for a financial services license in Japan or seek registration.

P2P Platforms in the State of Japan

As far as P2P platforms in Japan are concerned, each of their participants must be licensed as lenders, if there are no anonymous participants involved. However, under the recently updated guidelines, participants do not have to be licensed as lenders. The only exception is made to:

• corporations;
• partnerships.

Also, participants do not have to seek registration if they signed an agreement whereby each creditor is forbidden from getting in touch with borrowers to retrieve funds.