Banking Regulation

2024
11th Edition

Contributing Editors: Peter Ch. Hsu & Daniel Flühmann

CONTENTS
PrefacePeter Ch. Hsu & Daniel Flühmann, Bär & Karrer

AndorraMiguel Cases Nabau & Laura Nieto Silvente, Cases & Lacambra

1Austria

Clemens Völkl & Franz Brudl, Völkl Rechtsanwälte GmbH

19

BrazilBruno Balduccini, Veronica Rossi Marins Midega & Amanda Blum Colloca
Pinheiro Neto Advogados

31

CanadaPat Forgione, Alex Ricchetti & Shaniel Lewis, McMillan LLP

41

Chile

Diego Peralta, Fernando Noriega & Felipe Reyes, Carey

57

Congo – D.R.

Liliane Mubanga Wetungani & Valerio Sieni,
Thambwe-Mwamba & Associés

68

Germany

Jens H. Kunz & Klaudyna Lichnowska, Noerr PartG mbB76

Indonesia

Vinay Ahuja, Andrew Tambunan & Salsabila Wisriansyah,
Nusantara DFDL Partnership

93

IrelandJosh Hogan & David O’Keeffe Ioiart, McCann FitzGerald LLP

105

Italy

Emanuele Grippo & Federico Cappellini, Gianni & Origoni

118

Japan

Koji Kanazawa & Katsuya Hongyo, Chuo Sogo Law Office, P.C.

132

LiechtensteinDaniel Damjanovic & Sonja Schwaighofer,Marxer & Partner, attorneys-at-law

143

Luxembourg

Andreas Heinzmann & Hawa Mahamoud, GSK Stockmann

153

Portugal

Maria Almeida Fernandes, Pedro Cardigos & Lisa Maria Altmann,Ferreira Pinto Cardigos

170

Singapore

Ting Chi Yen & Tio Siaw Min, Joseph Tan Jude Benny LLP181

South Africa

Natalie Scott, Janice Geel & Slade van Rooyen, Werksmans Attorneys

198

Switzerland

Peter Ch. Hsu & Daniel Flühmann, Bär & Karrer

212

TaiwanRobin Chang & Andrea Chen, Lee and Li, Attorneys-at-Law

232

United Kingdom Alastair Holt & Simon Treacy, Linklaters LLP243

JapanKoji Kanazawa & Katsuya Hongyo
Chuo Sogo Law Office, P.C.
Introduction
There are currently around 34 major banks and online banks, 100 regional banks and 56
foreign bank branches in Japan. With the continuing policy of low interest rates (unlike
in other countries that have converted to positive interest rate policy) and the ageing
population, the economic situation has not been easy on banks in Japan, and this situation
is not likely to improve any time soon. To address this situation, deregulatory measures
have been introduced in the banking sector in recent years aiming to improve banks’earnings, focusing especially on regional banks that are experiencing difficult conditions.
Furthermore, it is expected that the existing banking regulations will be further amended toreinforce the banks’ business foundation.
Regulatory architecture: Overview of banking regulators and key regulations
Banking regulators
The Japanese banking sector is governed and regulated by the Financial Services Agency(“FSA”), the authority responsible for ensuring the stability of Japan’s financial system,
giving protection to depositors, policyholders and investors, and maintaining smooth financethrough planning and policymaking, inspection and supervision of financial institutions,and monitoring of securities transactions. The FSA comprises three major bureaus: theStrategy Development and Management Bureau; the Policy and Markets Bureau; andthe Supervision Bureau. The Commissioner of the FSA delegates a part of the authority
for inspection and supervision of financial institutions to the Directors-General of Local
Finance Bureaus (local branches of the Ministry of Finance).
The Bank of Japan (“BOJ”) also conducts examinations of banks’ operations and assets(called “Nichigin Kousa”). In December 2020, the FSA and the BOJ established the“Inspection and Examination Coordination Meeting”. The meeting will continue to coordinate plans for the FSA and BOJ inspections, and to discuss key themes on a regular basis.
The FSA and the BOJ have announced that they would conduct high-quality monitoringof financial institutions, thus reducing their respective burdens, through measures such asdata integration and sharing results of inspections.
The Deposit Insurance Corporation of Japan (“DICJ”) conducts several types of on-site
inspections, such as inspections based on the Deposit Insurance Act, which examine
payments of insurance premiums, and inspections based on the Criminal Accounts Damage
Recovery Act, which examine procedures for damage recovery benefits.
Key banking regulations
The Banking Act of Japan, which has been amended again and again since its enactment, isthe core banking legislation providing a basic regulatory framework for the Japanese banking
GLI – Banking Regulation 2024, 11th Edition132

www.globallegalinsights.com

JapanChuo Sogo Law Office, P.C.

sector. More notably, over the past several years, the Act has been frequently amended as partof deregulatory measures to help Japanese banks address and respond to significant changes intheir external environment, such as the historically low interest rates and FinTech developments.
In its role as an overseer of banks pursuant to the Banking Act, the FSA has established“Comprehensive Guidelines for Supervision of Major Banks, etc.” to guide bank regulatorsin their supervision over banks. While these Guidelines have been drafted mainly for the
regulators’ reference, they stipulate many important principles and rules for private banks
to follow; indeed, the Guidelines have become an essential source of Japanese banking
regulations. In addition, the answers given by the FSA during public consultations on
key regulations not only reveal its views and interpretations on the subject, but are also
important regulatory sources for study and consideration by private banks.
Recent regulatory themes and key regulatory developments in JapanThe recent revision of the Banking Act affects mainly the scope of business of banks andbank groups. The prudential regulations, including the capital adequacy ratio, are being
progressively strengthened based on the Basel Ⅲ Regime. Moreover, as regulations
relating to the business scope of banking institutions differ from country to country, Japan isshifting toward significantly easing its approach vis-à-vis international rules. Accordingly,
the business scope has recently been relaxed in IT-related businesses and operations
contributing to building a sustainable society and regional revitalisation.
Major topics of Banking Act amendments in 2019
Addition of a new incidental service: the service of providing customer information to athird party
To promote better utilisation of data, the following services have been added as incidental
services of banks: the service of providing customer information acquired from the customer
to a third party with the customer’s consent; or any other service in which the bank provides
information it retains to a third party for the purpose of (a) improving the banking business,or (b) enhancing the convenience of bank users.
Review of regulations on the Large Exposure Restrictions in 2020
The Banking Act prohibits banks and groups of banks from extending credit to a specificcompany or person or parties related to them in excess of a certain proportion of theirown capital in order to reduce credit concentration risk (“Large Exposure Restrictions”).
These Large Exposure Restrictions stipulate that the amount of credit (such as loans, debt
guarantees and equity investments) provided to a certain group of recipients by banks on a
non-consolidated basis and on a group basis may not, as a general rule, be more than 25%of the amount of equity capital. The main contents of this revision are as follows:• Introduction of a look-through method for funds and securitised products (whenindividual assets are 0.25% or more of equity capital).
• While applying Credit Risk Mitigation (“CRM”) techniques, such as qualified
guarantees, banks must recognise their exposure to CRM providers. The amount of
exposure is the amount by which exposure to the original counterparty is being reduced.
• Call loan accounts are added to the scope of “credit” under these restrictions (with due
dates other than intraday).
Major topics of Banking Act amendments in 2021
Expansion of business of Advanced Banking Service Companies
The following revisions have been made with respect to the Advanced Banking Service
Companies introduced by the revision of the Banking Act in 2016:
GLI – Banking Regulation 2024, 11th Edition

133

www.globallegalinsights.com

JapanChuo Sogo Law Office, P.C.

•
•

•

•

Expanding the definition of an Advanced Banking Service Company to include“operations that contribute to the revitalization of regions, the improvement of industrial
productivity, and other aspects of building a sustainable society”.
Easing approval standards for Advanced Banking Service Companies that provide allor any of the following services (“Certain Advanced Banking Service Companies”):• FinTech services;• regional trading services with limited inventories and limited manufacturing andprocessing functions;• registered-type staffing services that contribute to the improvement of the business;• design, custom, sales, and maintenance of IT systems and programs developed bybanks;• data analysis, marketing and advertising;• management of automatic teller machines, including their maintenance and inspection;• consultations related to the adult guardianship system and services relating to theaffairs of adult guardians; and• other additional and incidental businesses.
Easing governmental approval requirements for the acquisition of Certain Advanced
Banking Service Companies. Previously, government approval was required for theacquisition of more than 5% of voting rights of a Certain Advanced Banking Service
Company, but after the amendment, an approval is required only for the acquisitionof more than 50% of such entity’s voting rights (note, however, that a notification isrequired for acquisitions of more than 5% but less than 50% of its voting rights).
In cases where a bank group that has been certified to possess certain qualities, suchas having a certain level of financial soundness and governance, engages in “certain
advanced services” as a subsidiary of a bank holding company, a notification system
will be adopted dispensing with the need for individual approval.

Expansion of a bank’s ancillary businessBusinesses that mainly utilise management resources related to the banking business andcontribute to the establishment of a sustainable society have been added to the ancillarybusinesses in which a bank can now engage. Specifically, these new businesses include:• businesses such as consulting services and corporate matching services;• registered-type staffing services that contribute to the improvement of the bank’s business;• design, custom, sales, and maintenance of IT systems and programs developed by banks;• data analysis, marketing and advertising; and• daily life support services for the elderly and other users provided by sales representativesof banks.
Deregulation of investment
In view of a shortage of providers of capital funds in the region, the following points havebeen revised within the investment regulations for a bank group:• Expansion of the scope of operations of companies that specialise in investing:• Investments in venture business companies, business succession companies, andregional revitalisation business companies must be made through specialised
investment companies. Before the amendment, the scope of business of specialised
investment companies was limited to investments and loans, and operations incidental
thereto. An addition of consulting and other services to the company’s operations is
to strengthen the hands-on support capabilities of specialised investment companies.
GLI – Banking Regulation 2024, 11th Edition

134

www.globallegalinsights.com

JapanChuo Sogo Law Office, P.C.

•

•

•
•

Easing the requirements for venture business companies:• The numerical standards have been repealed, and it is now acceptable if thecompany is a small or medium-sized enterprise engaged in new business activities
and 10 years have not yet passed since the later of the date of the establishment of
the new company or the date of the commencement of the new business activities.
Enabling early support of business revitalisation companies:• Requiring the preparation of management improvement and rehabilitation plans
with the involvement of certain third parties other than the banking group insteadof requiring a court decision to approve a rehabilitation plan in legal insolvency
procedures, etc.
The maximum period for holding of voting rights in the business succession companies
has been extended from five years to 10 years.
The limitation of investment in regional revitalisation companies has been increased
from 50% to 100%.

Scope of business of foreign subsidiary companies and foreign sister companies
Before the amendment, when a Japanese bank group acquired a foreign financial institutionthat owned a foreign subsidiary, the bank group, as a general principle, was required tosell such foreign subsidiary within five years after the acquisition if the business of suchforeign subsidiary conflicted with the scope of business restrictions under the Banking Act.
However, this principle has now been changed and the application of the scope of businessrestrictions has been extended to 10 years after the acquisition. Thereafter, if there is aneed for competition in the foreign country, the bank group may hold the foreign subsidiary
without any time limitation subject to the FSA’s approval.
Also, whereas, under the previous system, banks were not allowed to acquire foreignleasing companies or moneylenders that were also engaged in general business, with the2021 amendment, banks are now permitted to acquire these businesses, and the scope ofbusiness restrictions has been extended to 10 years after the acquisition. Thereafter, if
there is a need for competition in the foreign country, a Japanese bank group may own
such foreign leasing companies and moneylenders without any time limitation subject to
the FSA’s approval.
Impact on the banking industry of the 2022 amendments to the Payment Services Act and the
Banking Act
The amended Payment Services Act, etc. came into effect on June 1, 2023. This amendment
clarifies the regulatory position of “Electronic Payment Instruments”, i.e., so-called stablecoins, and introduces a registration system for the intermediary acts of buying, selling,exchanging, managing, and mediating such Electronic Payment Instruments as a business.
Also, the amendment clarifies that banks, trust companies, and fund transfer service
providers are positioned as issuers of the Electronic Payment Instruments, and thus banks areallowed to issue stable coins as part of their inherent business of fund transfer transactions.
Furthermore, the bank issuing the stable coins may also engage in “Electronic Payment
Instrument Services” with regard to the stable coins it has issued by submitting a notification.
In addition, a new registration system for “Electronic Payment Handling Services” wasintroduced by the 2022 amendment to the Banking Act. Although the existence of multiple
registration systems with similar names may cause confusion, this new system permits
electronic fund transfers on behalf of banks only through registration, without obtaining alicence as a “Bank Agency Service”, which has existed for some time.
GLI – Banking Regulation 2024, 11th Edition

135

www.globallegalinsights.com

JapanChuo Sogo Law Office, P.C.

Major topics of banking regulation amendments in 2023
Clarification of Demonstration Experiments exempted from the scope of business regulation
The FSA has clarified that pilot businesses conducted as Demonstration Experiments are
exempt from the scope of business regulation by amending the Supervisory Guidelines in2023.
In particular, the Supervisory Guidelines stipulate that when a Demonstration Experiment isconducted by a banking group, including a bank, as a preparatory act for the establishmentof an Advanced Banking Service Company, the risks associated with the Demonstration
Experiment should be examined on a case-by-case basis and that care should be taken not
to affect the soundness of the bank or banking group and the proper management of its
business. The term “Demonstration Experiment” here refers to an experiment in which abank or a group company of a bank conducts a Demonstration Experiment within the scopeof its preparatory activities for the establishment of an Advanced Banking Service Company
in order to verify the profitability and business continuity of the operations to be conductedby the Advanced Banking Service Company before management decides whether or not toestablish such a company.
Bank governance and internal controls
Under the Banking Act, a bank is required to be a stock company (“Kabushiki Kaisha”);
as such, it has: (a) a board of directors; (b) a board of company auditors, an audit andsupervisory committee, or nominating, compensating and auditing committees; and (c) an
accounting auditor. The banks listed on the Japanese stock market are required to disclose
their governance status pursuant to Japan’s Corporate Governance Code, which takes the socalled “comply or explain” approach. Under this approach, in case a bank does not comply
with the Code’s recommendations, an explanation of the reasons for non-compliance needs
to be disclosed. The “Comprehensive Guidelines for Supervision of Major Banks, etc.”
provide supervisory guidelines as to what kind of governance measures the banks shouldtake. The Guidelines also stipulate the required internal controls for the banks, including
compliance, countermeasures against financial crimes, AML/CFT and anti-social forces,
and consumer protection.
Bank capital requirements
Japan is gradually revising its domestic prudential regulations based on the content of theBasel III agreement, which was finalised in the wake of the global financial crisis of 2008.
Capital adequacy ratio
The equity ratio is calculated using the amount of risk assets as the denominator and equity
capital as the numerator. There are two methods for calculating risk assets: the standard
method, which is calculated by multiplying the amount of assets held by a certain risk
weight; and the internal ratings-based approach, which calculates the amount of risk assets
by substituting the default rate estimated according to the banks’ internal ratings into apredetermined formula. Adoption of the internal rating methodology requires regulatory
approval to meet requirements, but Basel III has limited the use of the methodology forsome risk exposures, including equity risk exposures.
The Capital Adequacy Ratio Regulation requires the capital adequacy ratio to exceed acertain level. This certain level varies widely depending on whether the bank in question isan internationally active bank (a bank with an overseas business base) or a domestic bank(a bank without an overseas business base).
GLI – Banking Regulation 2024, 11th Edition

136

www.globallegalinsights.com

JapanChuo Sogo Law Office, P.C.

For internationally active banks, the following three criteria must be met:
• The total capital ratio (calculated by dividing the sum of Common Equity Tier1 plus
other Tier1 plus Tier2 by risk-weighted assets) may not be less than 8%.
• Tier1 capital ratio (calculated by dividing the sum of Common Equity Tier1 plus otherTier1 by risk-weighted assets) may not be less than 6%.
• Common Equity Tier1 ratio (Common Equity Tier1 divided by risk-weighted assets)
may not be less than 4.5%.
In addition, the capital conservation buffer (2.5%), the countercyclical buffer (2.5%
maximum, 0% within Japan and set for each country) and G-SIBs (global systemicallyimportant banks)/D-SIBs (domestic systemically important banks) (3.5% maximum, and
0.5 to 1.5% for banks selected in Japan) have been phased in for internationally active banks
since 2016. In addition, G-SIBs are required to have Total Loss-Absorbing Capacity, which
is based on the Basel Framework.
Domestic banks, on the other hand, are required to maintain a capital adequacy ratio (corecapital divided by risk-weighted assets) of no less than 4%.
In addition, although not by way of a capital requirement, banks need to satisfy, as aprudential requirement, other standards such as liquidity standards (liquidity coverage ratio,
stable funding ratio) and leverage ratio.
Early Correction Measures
In Japan, a violation of the capital adequacy standards is an important benchmark used by
the authorities to take administrative measures, including issuance of business improvement
orders to banks. When a bank violates the capital adequacy ratio standards, an order forbusiness improvement is first issued, and when the ratio of non-achievement increases
to or exceeds a certain level, an order for business reduction, business suspension, ordiscontinuation of banking business may be issued (“Early Correction Measures”).
Banks that are not eligible for Early Correction Measures have mechanisms to encourage
management improvement aimed at maintaining and improving soundness based on risks
not captured in the capital adequacy ratio (such as concentration risk, interest rate risk)(“Early Warning System”).
For foreign bank branches, corresponding capital adequacy ratio standards have not been
introduced, and neither capital adequacy requirements nor Early Correction Measures arebeing applied to them.
Rules governing banks’ relationships with their customers and other third parties
Provision of information to depositors
When accepting deposits, banks must provide their customers with information onsuch deposits. Specific information to be provided is stipulated in the Regulation for
Enforcement of the Banking Act, which contains detailed explanations of the deposits, suchas clarification of interest rates on major deposits, the amount of commissions, and deposits
subject to deposit insurance, and information on the absence of principal guarantees indeposits containing derivatives. In addition, a bank that handles securities or insurance
products must provide an explanation that securities or insurance products are not deposits.
Customer information management, including compliance with the Personal Information
Protection Law, and management of outsourcees
Banks are required to take measures to ensure the proper management of customer information
obtained in connection with their business. Details on customer information management
GLI – Banking Regulation 2024, 11th Edition

137

www.globallegalinsights.com

JapanChuo Sogo Law Office, P.C.

are set forth in supervisory guidelines. Banks dealing with personal information relating
to customers who are individuals must comply with regulations related to the Personal
Information Protection Law. In particular, financial institutions are required to take morestrengthened measures than general companies in accordance with the Guidelines on theProtection of Personal Information in the Financial Sector.
Banks are also required to take measures to ensure proper performance of their business
when entrusting business to others. Details on the management of entities to which businessis outsourced are provided in supervisory guidelines. For example, in an outsourcing
contract, banks should take measures such as imposing on the service-providing entity thesame customer information management obligations as those applicable to the banks.
Large Exposure Restrictions
Under the Large Exposure Restrictions, the Banking Act prohibits banks and groups ofbanks from extending credit to a specific company or person or parties related to themin excess of a certain proportion of their own capital. The amount of credit extended tocertain parties will be aggregated, including parent-child and sibling companies (based on
the control criteria) and affiliated companies (based on the impact criteria). Credit as usedherein refers to guarantees, equity investments, debts, and the like, as more specificallystipulated in the Regulation for Enforcement of the Banking Act and the FSA Public Notice.
In general, the maximum amount of credit is calculated by multiplying equity capital by
25%; however, for some recipients, such as major shareholders of banks, the amount ofequity capital is to be multiplied by 15%. The amount of equity capital is the amount ofTier1 equity for internationally active banks and the amount of total capital for domestic
banks. On the creditor side, the amount of credit extended by the bank and its subsidiarycorporation, etc. (parent-child relationships based on the control criteria) is combined todetermine whether that amount exceeds the upper limit of the amount of credit.
Arm’s length rule
A bank may not conduct transactions with its Specified Related Parties or their customers
if the terms of such transactions would prejudice the bank or unduly prejudice any of theSpecified Related Parties as compared to the ordinary terms and conditions of transactions
conducted by the bank; provided, however, that the foregoing does not apply when there isan unavoidable reason, such as when funds are loaned within the financial group, and suchtransaction has been approved by the authorities.
Prohibited acts
The Banking Act prohibits banks from engaging in certain acts, as set forth below. In thepast, some banks have been found to have abused their “dominant bargaining position”;
moreover, sales of unnecessary bundled products by the banks have created notableproblems. In recent years, however, it has been pointed out that banks do not necessarily
hold a dominant bargaining position vis-à-vis their customers.
False notice
Making false statements to customers is prohibited.
Offering conclusive judgment
Banks are prohibited from providing customers with conclusive judgments regarding
matters that are not certain, or telling them things that might lead them to believe that suchmatters are indeed certain.
GLI – Banking Regulation 2024, 11th Edition138

www.globallegalinsights.com

JapanChuo Sogo Law Office, P.C.

Bundled sales
As a general rule, banks are prohibited from providing customers with credit or promising
to extend credit on the condition that they carry out transactions pertaining to the business
operated by the banks or a specified person to the banks. By way of exception, when it is
not unreasonable, e.g., when it is reasonable to carry out multiple transactions as a package,
the foregoing prohibition does not apply. Banks are also prohibited from unjustly providing
customers with credit or promising to extend credit on the condition that they deal with abusiness designated by them.
Non-announcement of material facts
Failure to inform a customer of an important matter in light of that customer’s knowledge,
experience, financial status, or purpose of executing a given transaction in accordance withthe content and method of business it engages in, or informing a customer of something thatis likely to lead to a misunderstanding, is prohibited.
Abuse of dominant bargaining position
An act that unjustly uses a dominant bargaining position of a bank to disadvantage acustomer with a view to implementing a transaction is prohibited.
Development of conflict-of-interest management systems
Banks must establish a system for ensuring that the interests of their customers and theirsubsidiary financial institutions are not unreasonably harmed in connection with thetransactions of the banks and their parent-subsidiary financial institutions. This is referred
to as the establishment of a conflict-of-interest management system.
Specifically, banks are required to: (1) establish systems to identify the transactions
they intend to enter into (to identify transactions that might unduly harm the interests ofcustomers); (2) establish systems to ensure the proper protection of customers; (3) formulate
and publicise policies relating to (1) and (2); and (4) preserve records pertaining to (1) and(2). Examples of (2) include setting up the so-called Chinese Walls, changing the terms andmethods of trading, suspending trading, and disclosing of information.
Confidentiality
Based on precedents, financial institutions may not, without justifiable cause, disclose
customer information, such as information on transactions with customers and information
on customers’ credit obtained in connection with transactions with customers. Theseobligations of financial institutions are generally referred to as confidentiality obligations.
If it is clear that financial institutions are leaking customer information without legitimate
cause in violation of confidentiality obligations, the authorities may intervene (by way of
issuing instructions or imposing supervision) on the ground that there is a problem with thecustomer information management system.
Principles of customer-oriented business conduct
There are seven principles of customer-oriented business conduct and each principle isaccompanied by interpretation notes. These principles were formulated with the aim ofencouraging financial businesses to compete for the provision of better customer-oriented
financial products and services. Financial institutions that have adopted customer-oriented
principles are required to formulate and publish a clear policy for realising customeroriented business conduct. Most banks in Japan, including branches of foreign banks, haveadopted these principles.
GLI – Banking Regulation 2024, 11th Edition

139

www.globallegalinsights.com

JapanChuo Sogo Law Office, P.C.

Customer-oriented principles employ the so-called “Principles-Based Approach” toencourage competition among financial companies for customers looking for high-quality,
customer-oriented financial products and services. In addition, financial institutions that
accept customer-oriented principles are not required to implement all of the seven principles;
instead, the concept of “comply or explain” has been adopted, allowing them to explain thereasons and implement alternative measures in lieu of some of the principles. Furthermore,even if banks violate any of the principles they have adopted, they are not automaticallysubject to administrative actions by the FSA.
AML/CFT
With regard to AML/CFT in Japan, the related laws and regulations, such as the Act on
Prevention of Transfer of Criminal Proceeds and the Foreign Exchange and Foreign Trade
Act (“FEFTA”), require banks, among other things, to confirm customer identity and the
purpose of the transaction at the time of opening of an account, and to report to the authorities
any suspicious transactions involving criminal proceeds. In addition, financial institutions
are required to comply with the content of the Guidelines for AML and CFT published by
the FSA. According to these Guidelines, specified business operators, including financial
institutions, need to identify and assess risks related to customers’ operations in a timely
and appropriate manner and take mitigating measures commensurate with such risks (socalled “risk-based approaches”), while taking into account any changes in the internationalsituation. The results of the Fourth Round Mutual Evaluation of Japan by the Financial
Action Task Force (“FATF”) were published in August 2021, and Japan was rated as a country
requiring an enhanced follow-up. Faced with that result, Japanese authorities are stepping up
their supervisory efforts by conducting inspections performed simultaneously over various
financial institutions carrying high AML/CFT risk. Furthermore, Japanese authorities may
also seek to further strengthen regulations relating to AML/CFT. The FSA has requested
financial institutions to complete their compliance with the requirements stipulated in
the Guidelines by the end of March 2024. The FSA has explicitly stated that, should theinstitutions fail to comply by this deadline, it may issue administrative orders. In the context
of the Fourth Round Mutual Evaluation of Japan by FATF, it has been pointed out that there isa need for appropriate exercise of administrative authority concerning AML/CFT measures.
Financial institutions should be fully aware of the possibility of administrative orders being
imposed on those institutions recognised as having insufficient compliance measures.
Regulatory framework on economic sanctions
Under the FEFTA in Japan, and under U.S. OFAC regulations in the U.S., banks are required
to confirm at the time of entering into transactions with customers that (a) the transactions
are not conducted with sanctioned countries, regions or people (such as specially designatednationals), (b) customers do not have assets in such countries or regions, and (c) the purposeof currency remittance is not related to such countries or regions.
As a recent development, to ensure the effectiveness of economic sanctions, an amendment
to the FEFTA was enacted, requiring foreign exchange transaction service providers tocomply with the Foreign Exchange Transaction Service Providers Compliance Standards
as prescribed in the FEFTA. Under these standards, measures and systems for dealing
with risks related to economic sanctions are now explicitly required as obligations under
the FEFTA. In response, in November 2023, “Guidelines regarding the Foreign Exchange
Inspection” were reorganised and published as “Guidelines for Compliance with the Foreign
Exchange and Foreign Trade Act for Foreign Exchange Transaction Service Providers”.
GLI – Banking Regulation 2024, 11th Edition

140

www.globallegalinsights.com

JapanChuo Sogo Law Office, P.C.

These Guidelines present interpretations and perspectives on compliance with the FEFTA,
including the Foreign Exchange Transaction Service Providers Compliance Standards, andalso provide inspection guidelines for inspectors conducting foreign exchange inspections.
Financial alternative dispute resolution
In Japan, alternative dispute resolution (“ADR”) procedures are in place in addition to
lawsuits to resolve disputes between banks and their customers. Financial ADRs impose
three obligations on financial institutions in order to enhance the protection of users ofbanking services: (i) acceptance of procedures; (ii) submission of business explanations
and materials; and (iii) honouring the results. In the case of banks, the Japanese Bankers
Association (“JBA”) is the designated dispute resolution organisation. It is necessary forbanks to conclude a Basic Contract of the Implementation of Dispute Resolution Procedureswith the JBA. And, if a petition for a financial ADR is filed by a customer, the bank is
obligated to execute procedures based on that Contract.
Deposit insurance system by the DICJIn Japan, as in other countries, the insurance system aims to protect depositors’ deposits inthe event of bankruptcy of a financial institution. The system works as follows: financial
institutions pay deposit insurance premiums to the DICJ, and, in the event that a financial
institution fails, the DICJ protects depositors by paying a certain amount of insurancemoney. Regarding the scope of the protection, the deposits for settlement are protected
for up to the total amount of principal, and the principal and interest of general deposits
are protected for up to 10 million yen. Amounts exceeding 10 million yen may be repaid
either in part or in full depending on the status of the assets of the failed financial institution.
In contrast, foreign currency deposits, certificates of deposit, and financial bonds are notcovered by this protection.

GLI – Banking Regulation 2024, 11th Edition

141

www.globallegalinsights.com

JapanChuo Sogo Law Office, P.C.

Koji Kanazawa
Tel: +81 3 3539 1877 / Email: kanazawa_k@clo.gr.jp
Koji Kanazawa has advised multiple financial institutions on all aspects of theiroperations, with a focus on financial regulatory matters. In particular, with his
experience working at the Japanese Financial Services Agency, he has workedon compliance/risk management issues of financial institutions including
AML/CFT, countermeasures against anti-social forces, and personal dataprotection. He has represented both Japanese and overseas clients, includingbanks, insurance companies, asset management companies, investment funds,
credit card companies, leasing companies and non-bank finance companies.
Such representation extends to complex financial regulatory matters(including issues relating to the Banking Act, the Insurance Business Act, theFinancial Instruments and Exchange Act, the Money-lending Control Act,the Investment Act and the Asset Securitization Act), structured finance andlitigation arising from sales of financial instruments.
Katsuya Hongyo
Tel: +81 3 3539 1877 / Email: hongyo_k@clo.gr.jp
Katsuya Hongyo represents Japanese and overseas clients, including banks,
insurance companies, asset management companies, and fintech start-ups.
His practice focuses on financial regulation, finance, mergers and acquisitions,compliance/risk management, and litigation, drawing in large part on his
experience working as a visiting attorney at Kirkland & Ellis LLP in Chicago
and as a seconded attorney at the Japanese Financial Services Agency. During
his secondment, he revised financial regulations to enable banks to invest
in trading companies that expand local SMEs’ sales channels and clarify
requirements for banks to deal with cryptoassets or operate informationbanking businesses. He also partly drafted the Act on Special Provisions of the
Antimonopoly Act, making it easier for banks to integrate their business, andresponded to inquiries from banks for an interpretation of banking regulations.

Chuo Sogo Law Office, P.C.
Hibiya Kokusai Building, 18th floor, 2-2-3 Uchisaiwaicho, Chiyoda-ku, Tokyo 100-0011, Japan
Tel: +81 3 3539 1877 / URL: www.clo.jp
GLI – Banking Regulation 2024, 11th Edition142

www.globallegalinsights.com

www.globallegalinsights.com

Global Legal Insights – Banking Regulation provides in-depth
analysis of laws and regulations across 19 jurisdictions, covering:• Regulatory architecture: Overview of banking regulators and key
regulations• Recent regulatory themes and key regulatory developments• Bank governance and internal controls• Bank capital requirements• Rules governing banks’ relationships with their customers andother third parties