Japan Lags Behind in Anti-Money Laundering Policies, Warns FATF
The Financial Action Task Force (FATF) has released a report highlighting concerns over Japan’s anti-money laundering (AML) and combatting the financing of terrorism (CFT) policies.
Lack of Understanding among Financial Institutions
The report notes that while some financial institutions in Japan have a reasonable understanding of their AML/TF risks, others have a limited understanding, which affects the application of a risk-based approach to money laundering. Additionally, designated non-financial businesses and professions (DNFBPs) such as casinos, real estate professionals, and law firms were found to have a low level of understanding of ML/TF risks and their AML/CFT obligations.
Virtual Asset Service Providers’ Limited Compliance
The report also pointed out that virtual asset service providers in Japan apply only basic AML/CFT requirements. This lack of comprehensive compliance opens up opportunities for money laundering and terrorist financing.
Coordination Issues among Government Agencies
The FATF noted that there is a lack of coordination between government agencies, which hinders the development of AML/CFT policies. To address this issue, the Japanese government plans to set up a cross-agency team and submit proposed legislation to parliament next year.
Challenges in Implementing Anti-Money Laundering Processes
Financial institutions in Japan face specific challenges in implementing anti-money laundering processes, including ongoing due diligence and assessing risks involved in new digital transaction services such as payment service providers, peer-to-peer lenders, and mobile money transfers. The FATF warning means that financial institutions and DNFBPs will face greater scrutiny over their AML/CFT controls in the coming months and years.
Leveraging Technology to Improve AML Processes
To protect themselves and meet compliance obligations, financial institutions and companies in Japan can leverage technology and intelligent data analysis to improve their AML processes. Experts recommend four essential elements of best practice:
- Making use of technology: Implementing digital solutions to streamline AML processes
- Adopting a risk-based approach: Identifying and mitigating specific risks associated with transactions and customers
- Updating and upgrading systems: Ensuring that systems are compatible with changing regulations and technologies
- Getting the most out of available data: Analyzing quality data to identify suspicious activity
The Japanese Financial Services Agency’s Take on Technology
The Japanese Financial Services Agency (JFSA) agrees that technology is key to efficient and effective AML processes. The FATF report highlights the potential benefits of new digital technologies, including artificial intelligence and machine learning, which can make AML/CFT measures faster, cheaper, and more effective.
Experts’ Warning: Immediate Action Needed
Experts at LexisNexis Risk Solutions warn that companies in Japan must take immediate action to improve their AML controls and stay ahead of emerging threats. With innovative technology and intelligent analysis of quality data, organizations can protect themselves and help maintain Japan’s reputation as a leading financial center.
Conclusion
The FATF report highlights the need for Japan to strengthen its anti-money laundering policies and combatting the financing of terrorism measures. By leveraging technology and implementing best practices, financial institutions and companies in Japan can improve their AML processes and stay ahead of emerging threats.