Regulatory Requirements for Banks in Japan
Banking Business Scope
The Banking Act of 1981 categorizes banking business into six main areas:
Typical Banking Businesses
- Deposit acceptance
- Loan provision
- Money transmission
- Foreign exchange transactions
Ancillary Businesses
- Safekeeping of valuables
- Security services
- Agency services
Securities Businesses
- Underwriting
- Trading
- Brokerage services
Insurance Businesses
- Life insurance underwriting and sales
- Non-life insurance underwriting and sales
Peripheral Businesses
- Credit card issuance
- Payment services
- Investment advisory services
Trust Businesses
- Custody and administration of assets
Bank Supervision and Inspection
The Financial Services Agency (JFSA) serves as the primary regulatory authority for banks in Japan, empowered to:
- Request reports
- Conduct on-site inspections
- Penalize misconduct
- Order asset holding within Japan
Additionally, the JFSA issues guidelines and supervision policies to ensure compliance with laws and regulations.
On-Site Examinations by Bank of Japan (BOJ)
The BOJ conducts on-site examinations to maintain a safe and sound financial system. These examinations cover:
- City banks
- Regional banks
- Trust banks
- Shinkin banks
- Securities firms
- Money market dealers
Other Principal Laws Concerning Banking
Banks in Japan are subject to various laws beyond the Banking Act, including:
Anti-Monopoly Act
- Prohibits banks from acquiring more than 5% of voting rights in another company, unless approved by the Japan Fair Trade Commission.
Act on Limitation on Shareholding by Banks and Other Financial Institutions
- Restricts banks’ shareholdings to an amount equivalent to their equity capital (Tier 1).
Deposit Insurance Act
- Protects deposits for payment and settlement purposes up to ¥10 million plus accrued interest per depositor per financial institution.
Financial Instruments and Exchange Act
- Regulates user protection, disclosure systems, self-regulatory functions of exchanges, and handling of improper transactions with respect to investment-type financial products.
Act on Prevention of Transfer of Criminal Proceeds
- Requires banks to verify customer identity at the time of a transaction and report suspicious transactions to authorities.
Depositor Protection Act
- Regulates compensation for damages suffered by depositors in cases of unauthorized automated withdrawal using counterfeit or stolen cash cards.
These regulations ensure the stability and safety of Japan’s banking sector, protecting both depositors and investors while maintaining fair competition among financial institutions.