Banking Secrecy and Depositor Protection in Japan

Overview

Japan’s banking system has implemented stringent measures to prevent money laundering and terrorist financing while providing robust depositor protection. Banks are required to verify customer and agent identities, as well as transaction purposes and nature.

Anti-Money Laundering Measures

• Article 6 of the Act on Prevention of Transfer of Criminal Proceeds mandates banks to:
  • Prepare and preserve verification records for seven years from the date of the transaction or agreement termination
  • Report suspicious transactions to the competent administrative authority
• Banks must verify customer and agent identities, as well as transaction purposes and nature

Deposit Insurance Corporation (DIC)

The DIC administers Japan’s deposit insurance system, providing financial assistance to failed financial institutions and directly paying insurance proceeds to depositors. The DIC has utilized the Financial Assistance Method in almost all cases of failed financial institutions.

Depositor Protection

• Statutory limit: JPY10 million per depositor, per insured financial institution
• Certain deposits, such as:
  • Foreign currency deposits
  • Negotiable certificates of deposit
  • Bearer deposits are disqualified from being covered by the deposit insurance system

Bank Secrecy Requirements

Japanese banks are subject to bank secrecy requirements. The duty of confidentiality has been established through case law, prohibiting banks from disclosing information on transactions between themselves and customers without prior consent.

Funding

The DIC is primarily funded through:

• Insurance premiums from insured financial institutions
• Capital contributions from the government, Bank of Japan, and certain financial institutions