Japan’s Financial Regulatory Compliance System: A Comparative Analysis with the United States

In the global economy, financial regulatory compliance plays a crucial role in ensuring economic stability and growth. Two major economic players, Japan and the United States, have distinct regulatory frameworks. In this article, we will compare the financial regulatory processes in these two countries based on a study by RIETI Fellow Andrei Greenawalt.

Japan’s Financial Regulatory Landscape

Japan underwent significant transformations in its financial regulatory landscape since the 1990s. The establishment of the Financial Reform and Restructuring Commission in 1996 aimed to deal with massive non-performing loans and restructure major banks. This overhaul eventually led to the formation of the Financial Services Agency (FSA), which took over the responsibilities of banking and securities supervision.

The United States’ Financial Regulatory System

The United States experienced its own financial instability, leading to the 2008 financial crisis. In response, the Dodd-Frank Wall Street Reform and Consumer Protection Act was enacted, establishing the regulatory framework for the U.S. financial system. The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) are the primary agencies responsible for financial regulatory compliance in the U.S.

Approach to Regulatory Discretion

One significant distinction between the two systems is their approach to regulatory discretion (Greenawalt, 2022). Japan’s regulatory framework is more prescriptive, focusing on detailed rules and guidelines. In contrast, the U.S. regulatory system is more principle-based, providing the flexibility to address evolving financial challenges.

Japan: Prescriptive rules and guidelines
United States: Principle-based regulatory framework

Role of Transparency

Transparency issues come to the forefront when comparing the two systems. Japan’s FSA is criticized for its lack of transparency, resulting in information asymmetry between regulators and regulated entities (Greenawalt, 2022). In contrast, the U.S. regulatory framework has made significant strides towards greater transparency, ensuring public access to essential financial data.

International Cooperation

Both Japan and the United States cooperate with international organizations for financial regulatory compliance. Japan’s FSA collaborates with the International Organization of Securities Commissions (IOSCO), Financial Stability Board (FSB), and Asian Securities Regulators Forum (ASRF). The United States participates in various multilateral agreements and initiatives, such as the G-20 and the Financial Stability Board (Greenawalt, 2022).

Conclusion

This comparative analysis highlights the differences between Japan and the United States’ financial regulatory systems. Both systems have their merits and challenges, providing valuable insights into the broader global regulatory landscape. Stay tuned for the latest research findings and discoveries from RIETI.

Reference: Greenawalt, A. (2022). Comparing Financial Regulatory Compliance Systems: Japan and the United States. Retrieved from https://rieti.jp/en/202205/RIETI2022-E-016.html