Financial Crime World

Japan Tightens Grip on Financial Crime with New Legislation

Japan is taking a stronger stance against financial crime with the enactment of new legislation aimed at improving corporate governance and enhancing transparency. Here’s what you need to know:

Contents

  • Background
  • Key Provisions of the FIEA Amendment
    • Strengthening Regulatory Framework
    • Enhancing Transparency in Financing Activities
    • Bolstering Corporate Governance
  • Combating Money Laundering
  • Impact on SMEs
  • Conclusion

Background

Japan’s financial regulatory environment has come under intense scrutiny due to rising concerns over corporate malfeasance and money laundering. The upper house of Japan’s parliament passed the newest legislation, known as the “Financial Instruments and Exchange Act (FIEA) Amendment,” on June 16, 2023.

Key Provisions of the FIEA Amendment

The FIEA Amendment targets several crucial areas, including:

Strengthening the Regulatory Framework

  • Stricter regulatory regime for securities exchanges and securities firms

Enhancing Transparency in Financing Activities

  • Reporting requirements for listed companies in transactions with related parties
  • Strengthened disclosure requirements for securities transactions

Bolstering Corporate Governance

  • Appointment of external directors
  • New system for disclosing related-party transactions

Combating Money Laundering

The updated law requires financial institutions to report suspicious transactions worth ¥3 million or more, expanding the scope of reporting obligations for financial institutions, such as brokerages, investment companies, and insurance firms.

Impact on SMEs

Some experts argue that the regulatory burden on small- and medium-sized enterprises (SMEs) could be significant.

Conclusion

With expected enforcement from April 2024, Japan is following the example of countries like the United States, the United Kingdom, and the European Union, in taking bold steps to tighten financial regulations in response to the evolving nature of financial crimes. Japan’s Financial Services Agency (FSA) will closely monitor the implementation of the new rules, ensuring effective application to all companies, regardless of size.

Background

  • Concerns over corporate malfeasance and money laundering
  • Latest wave of financial crimes raises questions over financial reporting in Japan

Key Provisions of the FIEA Amendment

  • Targeted areas: regulatory framework, financing activities transparency, corporate governance

Strengthening Regulatory Framework

  • Stricter regulatory regime for securities exchanges and securities firms

Enhancing Transparency in Financing Activities

  • Reporting requirements for listed companies in transactions with related parties
  • Strengthened disclosure requirements for securities transactions

Bolstering Corporate Governance

  • Appointment of external directors
  • New system for disclosing related-party transactions

Combating Money Laundering

  • Expanded scope of reporting obligations for financial institutions

Impact on SMEs

  • Regulatory burden on SMEs could be significant

Timeline

  • June 16, 2023: Upper house of Japan’s parliament passed the FIEA Amendment
  • April 2024: Expected enforcement date

Countries Tightening Financial Regulations

  • United States
  • United Kingdom
  • European Union