Financial Crime World

Japan’s Obliged Entities Face Strict Governance Requirements in Anti-Money Laundering Battle

Deadline Approaches for Complying with FSA Guidelines

TOKYO - Japan’s Financial Services Agency (FSA) has issued a deadline of March 2024 for obliged entities to complete their governance arrangements compliant with the agency’s guidelines on anti-money laundering (AML) and combating the financing of terrorism (CFT).

Key Governance Requirements

Obliged entities, including financial institutions, cryptoasset exchange service providers, and other companies involved in foreign transactions, must implement the following measures to prevent money laundering and terrorist financing:

  • Customer Due Diligence: Conduct customer due diligence, including identifying and verifying the identity of customers, and monitoring their transactions.
  • Risk Assessment: Assess the risks associated with business activities and implement measures to mitigate those risks.
  • Transaction Monitoring: Monitor transactions for suspicious activity and report any suspected money laundering or terrorist financing to the authorities.
  • Internal Controls: Establish internal controls to ensure compliance with AML/CFT regulations, including policies, procedures, and training programs.
  • Reporting: Report AML/CFT measures and activities to the FSA on a regular basis.

Enforcement

The FSA has strengthened inspections focused on AML/CFT measures and off-site monitoring of financial institutions. If an obliged entity fails to comply with the guidelines, it may be subject to administrative penalties, including:

  • Business improvement orders
  • Other sanctions

International Cooperation

Japan is a member of the Financial Action Task Force (FATF) and has developed its legal framework for AML/CFT based on FATF recommendations. The country’s major banks, including MUFG, are also members of the Wolfsberg Group, which publishes frameworks and guidance for managing financial crime risks.

Other Relevant Laws

The following laws affect the response to money laundering in Japan:

  • Act on the Protection of Personal Information (APPI): Obliged entities must obtain a data subject’s consent when providing third parties with their personal data, unless an exemption applies.
  • Whistleblower Protection Act: Protects employees who report suspected money laundering from dismissal or other unfavorable treatment.

Outlook

The FSA is expected to continue closely supervising obliged entities and may impose administrative penalties on those with inadequate governance arrangements. As the FATF prepares for its fifth round of mutual examinations, Japan’s obliged entities must be prepared to demonstrate their compliance with AML/CFT regulations to avoid potential sanctions.