Financial Crime World

Banks Tighten Grip on Customer Information Amid Increased Regulatory Scrutiny

In a move aimed at enhancing transparency and combating financial crime, Japanese banks are stepping up their efforts to confirm changes in customer information, including address updates due to relocation or other reasons.

Enhanced Transparency and Anti-Financial Crime Measures

The renewed focus on customer data management comes as part of the country’s ongoing efforts to comply with international anti-money laundering (AML) and counter-terrorist financing (CFT) regulations. In recent years, banks have become more proactive in verifying customer information, sending out emails or letters to customers to confirm any changes.

This increased vigilance is also a response to cases of deposit accounts being opened by visitors to Japan and then sold to criminal organizations upon their return home, which were used for money laundering purposes.

Asset Freezes and Transaction Monitoring

  • Banks have introduced systems to screen against databases of anti-social forces and sanctioned persons during the onboarding process and whenever the lists are updated.
  • This ensures that customers do not fall under the category of “anti-social forces” or persons subject to domestic or international sanctions.
  • Bank accounts used for fraud and other criminal activities can be frozen based on a victim’s report or a request from the police.

Retail banks typically monitor deposit account transactions using automated systems, while the Japanese Bankers Association is working to develop monitoring systems for common use due to the high cost of implementing individual systems.

Enforcement and International Cooperation

  • The Financial Services Agency (FSA) has strengthened inspections focused on AML/CFT measures and off-site monitoring of financial institutions since 2021.
  • The FSA has also requested that financial institutions complete the development of their governance arrangements in compliance with guidelines published by the end of March 2024.
  • Japan is a member of the Financial Action Task Force (FATF) and has developed its legal framework for AML/CFT based on FATF recommendations.
  • One of Japan’s major banks, MUFG, is also a member of the Wolfsberg Group, which publishes frameworks and guidance for managing financial crime risks.

Personal Data Protection and Whistleblower Protection

  • Obliged entities, such as banks, are required to obtain customer consent when providing personal data to third parties under the Act on the Protection of Personal Information (APPI).
  • However, they are exempt from this obligation in certain circumstances, including where the provision of personal data is based on laws and regulations or necessary to protect an individual’s life, body or property.
  • Under the Whistleblower Protection Act, employees are protected from dismissal or other unfavorable treatment as a result of whistleblowing about money laundering by their employer.

Outlook

As Japan prepares for the fifth round of mutual examinations with the FATF in 2024, it is expected that regulatory authorities will continue to closely supervise obliged entities and impose administrative penalties on those with inadequate governance arrangements. Banks are advised to remain vigilant and proactive in managing customer information to avoid potential sanctions.