Financial Crime World

Regulatory Framework for Banking Practices in Japan

Overview

The Japanese regulatory framework governing banking practices is designed to ensure fair and transparent transactions between banks and their customers. It encompasses relationships with Specified Related Parties, prohibited acts, customer-oriented business conduct principles, anti-money laundering/counter-terrorist financing (AML/CFT), and economic sanctions.

Key Points

Arm’s Length Rule

Banks are not allowed to engage in transactions with Specified Related Parties or their customers if the terms of such transactions prejudice the bank or unduly prejudice any of the Specified Related Parties compared to ordinary transaction terms.

Prohibited Acts

  • False Notice: Making false statements to customers is prohibited.
  • Offering Conclusive Judgment: Banks are not allowed to provide customers with conclusive judgments regarding uncertain matters.
  • Bundled Sales: Banks are generally prohibited from providing credit or promising to extend credit on the condition that customers carry out transactions pertaining to the bank’s business or a specified person.
  • Non-announcement of Material Facts: Failure to inform customers of important matters is prohibited.
  • Abuse of Dominant Bargaining Position: An act that unjustly uses a bank’s dominant bargaining position to disadvantage a customer is prohibited.

Customer-Oriented Business Conduct Principles

There are seven principles, including:

  • Transparency
  • Fairness
  • Protection of customer interests

Financial institutions must formulate and publish policies for implementing these principles.

AML/CFT

Banks are required to:

  • Confirm customer identity and the purpose of transactions at account opening.
  • Report suspicious transactions involving criminal proceeds to authorities.
  • Identify and assess risks related to customers’ operations and take mitigating measures commensurate with such risks (risk-based approaches).

Economic Sanctions

Banks are required to confirm at transaction time that transactions are not conducted with sanctioned countries, regions, or people. They must also comply with U.S. OFAC regulations.

Overall

The regulatory framework in Japan aims to promote fair and transparent banking practices, protect customer interests, and prevent financial crimes such as money laundering and terrorist financing.