Japan’s Regulatory Framework for Banks: A Complex System with Multiple Authorities

The Japanese banking sector operates under a complex regulatory framework, overseen by multiple authorities. This intricate system ensures the stability of banks while protecting consumers and maintaining market integrity.

Key Policies and Objectives

The Financial Services Agency (FSA) is Japan’s primary regulator, working to achieve three key objectives:

Financial Stability and Effective Financial Intermediation: The FSA aims to maintain a stable financial system that promotes economic growth.
Consumer Protection and Consumer Benefit: The agency prioritizes protecting consumers from unfair or deceptive practices in the banking industry.
Market Integrity, Transparency, and Market Functions: The FSA seeks to ensure fair market competition and transparency in financial transactions.

Regulated Institutions

In Japan, a bank is defined as an entity that engages in activities such as accepting deposits, lending funds, or dealing in funds transfer transactions under a banking license. Fintech companies are regulated differently depending on the type of service they offer:

Banks: Regulated under the Banking Law
Fintech Companies: Regulated under specific laws and regulations based on their services

Transactions between Affiliates

Banks and their affiliates are subject to limitations on transactions between them. The Banking Law prohibits transactions that are disadvantageous to either party, unless an exception is made.

Regulatory Challenges

The FSA faces several regulatory challenges, including:

Supporting the Economy: Maintaining financial stability during uncertain times
Promoting Financial Institutions: Supporting clients’ businesses and strengthening their business bases

Consumer Protection

Banks selling financial instruments to consumers are subject to the Act on the Provision of Financial Services (APFS), which obliges providers to explain important matters to customers. Banks will also be required to provide proper explanation or information under the Banking Law and the Financial Instruments and Exchange Law.

Future Changes

The FSA’s Strategic Priorities 2022-2023 aim to:

Support the Economy: Improving the financial system to facilitate firms addressing social issues such as climate change and digital society
Build a Financial System: Achieving economic growth while maintaining stability