Financial Crime World

Japan’s Financial Compliance Regulations: An In-depth Look into the Banking Act and Related Laws

Japan’s financial system is renowned for its robustness, and this strength is underpinned by a comprehensive regulatory framework. The following sections outline the key financial compliance regulations, focusing on the Banking Act and related laws that govern various aspects of the banking industry.

The Banking Act

Enacted in 1927 and significantly revised in 1981, Japan’s Banking Act serves as the cornerstone of its financial regulatory framework. Some of the matters it covers include:

  • Banking business scope
  • Capital adequacy
  • Accounting
  • Bank supervision and inspection

The Banking Act divides the scope of banking business into six main categories:

  1. Typical banking businesses
  2. Ancillary businesses
  3. Securities businesses
  4. Insurance businesses
  5. Peripheral businesses
  6. Trust businesses

Banking businesses can also be conducted through bank agents.

Japanese Banking Laws and Regulations

Bank Supervision and Inspection

Under its responsibilities outlined in the Banking Act, the Financial Services Agency (JFSA) oversees financial institutions, issuing licenses for operation and conducting on-site inspections and reporting requirements. The Bank of Japan (BOJ) also conducts examinations to maintain a sound financial system, including branches of foreign banks operating in Japan.

Other Principal Laws Concerning Banking

Financial institutions in Japan are subject to various other primary laws:

  1. The Anti-Monopoly Act: This act regulates mergers and acquisitions and sets limits on share ownership by banks and other financial institutions in other Japanese companies.
  2. The Act on Limitation on Shareholding by Banks and Other Financial Institutions: Restricts banks’ share ownership in other companies.
  3. The Deposit Insurance Act: Ensures deposit protection and provides measures for the resolution of failed financial institutions.
  4. The Financial Instruments and Exchange Act: Deals with securities trading and settlement, disclosure requirements, and the self-regulatory functions of exchanges. Prevents insider trading and handles improper transactions.

Key Provisions of Each Principal Law

  • The Anti-Monopoly Act: Prohibits banks (and other financial institutions) from holding more than 5% of the voting rights of another Japanese company.
  • The Act on Limitation on Shareholding by Banks and Other Financial Institutions: Restricts the shareholding ratio of banks and financial institutions.
  • The Deposit Insurance Act: Ensures deposit safety and protection in the event of a bank failure.
  • The Financial Instruments and Exchange Act: Establishes provisions for securities trading and settlement, disclosure requirements, and self-regulatory functions of exchanges.

These regulations collectively ensure that the Japanese financial sector remains stable, secure, efficient, and maintains fair competition and consumer protection. While this article primarily covers banking compliance regulations, other financial service providers and non-bank financial institutions are subject to parallel regulatory frameworks designed specifically for their business models.

References:

  • The Banking Act (Act No. 86 of 1981)
  • The Financial Services Agency (JFSA)
  • The Bank of Japan (BOJ)
  • The Anti-Monopoly Act (Act No. 1 of 1947)
  • The Act on Limitation on Shareholding by Banks and Other Financial Institutions (Act No. 58 of 2001)
  • The Deposit Insurance Act (Act No. 44 of 1950)
  • The Financial Instruments and Exchange Act (Act No. 25 of 1948)