Banking Regulation

Ninth Edition

Contributing Editors: Peter Ch. Hsu & Daniel Flühmann

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

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

BrazilBruno Balduccini, Veronica Rossi Marins Midega &

1Amanda Blum Colloca, Pinheiro Neto Advogados

18

CanadaPat Forgione, Darcy Ammerman & Alex Ricchetti, McMillan LLP

29

Chile

Diego Peralta, Fernando Noriega & Alejandro Toro, Carey

47

CyprusMarinella Kilikitas, Kilikitas & Co Law 

56

Germany

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

70

India

Nihas Basheer, Wadia Ghandy & Co.85

IrelandKeith Robinson & Keith Waine, Dillon Eustace LLP

95

Japan

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

108

Kenya

Esther Njiru-Omulele, Isaiah Mungai Kamau &
Maxwell Mafubo Maelo, Asafo & Co.Liechtenstein

119

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

134

Luxembourg

Andreas Heinzmann & Hawa Mahamoud, GSK Stockmann

144

Netherlands

Lous Vervuurt, BUREN

159

Portugal

Pedro Cardigos, Maria Almeida Fernandes &
Carolina Soares de Sousa, CARDIGOS

169

Qatar

Aurore Dib & Rana Moustafa, D&C Legal Services LLC180

RussiaVasily Averin, Alexandra Gel & Anton Mogilevskiy, MAST Legal

191South Africa

Mirellê Vallie, Asafo & Co.203

Switzerland

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

215

TurkeyBerk Çektir & Öznur Öngeç, Cektir Law Firm

234

United Kingdom Alastair Holt & Simon Treacy, Linklaters LLP241

JapanKoji Kanazawa & Katsuya Hongyo
Chuo Sogo Law Office, P.C.
Introduction
There are currently around 30 major banks, 100 regional banks and 55 foreign bank branches
in Japan. With the continuing policy of low interest rates and the ageing population, theeconomic 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 isexpected that the existing banking regulations will be further amended to reinforce thebanks’ 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 over banks’ operations and assets(called “Nichigin Kousa”). In November 2020, a task force was established to discussenhancement of cooperation between the FSA’s inspections and the BOJ’s examinations.
It has been announced that the FSA and the BOJ will conduct high-quality monitoring offinancial institutions, thus reducing their respective burdens, through measures such as data
integration and results sharing regarding 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 is the core banking legislation providing a basic regulatory
framework for the Japanese banking sector, and has been amended again and again since
it was first enacted. More notably, in the last five years, the Act has been frequently
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amended as part of deregulatory measures to help Japanese banks to address and respond to
significant changes in their external environment, such as the historically low interest rates
and the FinTech movement.
In its role of overseeing banks pursuant to the Banking Act, the FSA has established the“Comprehensive Guidelines for Supervision of Major Banks, etc.”, which aim at providing
supervisory guidelines for bank regulators in their supervision over banks. While these
Guidelines have been drafted mainly for the regulators’ reference, they stipulate many
important principles and rules that private banks ought 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 regarding 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 2016
Clarification of business management obligations within a financial group
A bank holding company or a bank at the top of a group manages the group’s business,
including formulation and proper implementation of the group’s basic policy management.
Since the Banking Act amendment of 1998, the government has adopted the view that it isappropriate to manage risk on a whole-group basis while clearly defining the boundaries ofbanking groups. In line with this approach, a banking group is required to disclose financial
statements and non-performing loans on a consolidated basis. Furthermore, banks’ capital
adequacy ratios, leverage ratios, liquidity coverage ratios, large exposure restrictions, andarm’s length rules serve as indispensable tools for the management of banking groups on aconsolidated basis.
Common and duplicate operations by holding companies
By obtaining authorisation from the Commissioner of the FSA, a bank holding company
may, on behalf of two or more group companies (at least one of which is a bank), perform
services that are common to these companies within the scope as specified under the
Regulation for Enforcement of the Banking Act. This allows bank groups to manage thecommon and duplicate services more uniformly and efficiently.
Ease of financing within a group (exemption from an arm’s length rule)
In the event that a bank conducts transactions with other banks belonging to the samebank holding company group and the bank has been approved on the ground that suchtransactions are not likely to impair the soundness of the bank’s management, the restrictions
on transactions with specified parties (the so-called “arm’s length rules”) will not apply.
Facilitating investment in finance-related IT companies, etc.
A bank or a bank holding company may, by obtaining authorisation, acquire or hold voting
rights in excess of the standard number of voting rights with regard to voting rights of a
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company that engages in business that contributes to the advancement of banking businessor the convenience of users through the use of information and communications technology
or other technologies, or business that is expected to contribute to such business (“Advanced
Banking Service Companies”).
Special provisions on foreign bank agency services
When a Japanese bank or a branch of a foreign bank intends to operate an agency orintermediary service (a foreign bank agency service) for a foreign bank, it is necessary, inprinciple, to obtain the approval of the FSA. Such approval is required for each foreignbank that acts as a contractor (individual authorisation system). In this amendment, as a
special exception to the individual authorisation system, a comprehensive authorisation
system was introduced at the level of the foreign bank group including the bank acting asan outsourcing entity.
Major topics of Banking Act amendments in 2017
Development of systems for electronic payment services
In response to an increasing number of financial service providers acting as intermediaries
for services between users and financial institutions, this amendment to the Banking Act
stipulates for the registration of “electronic payment services”. These electronic payment
services refer to a business operator who transmits payment instructions on behalf of a user
to a bank or acquires information pertaining to an account from a bank and provides it to auser through the use of IT.
Before carrying out the electronic payment services, such service provider must enter intoand make public a contract for these services with a bank. Such a contract is required
to stipulate (a) matters concerning sharing of liability for compensation for damages
the user may sustain, and (b) measures for the proper handling and safety managementof information pertaining to users obtained in relation to the business, and others. The
electronic payment service provider has to carry out its business in accordance with theaforementioned contract.
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).
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••

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:• 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 automated teller machines, including their maintenance andinspection;• consultations related to the adult guardianship system and services relating to theaffairs of adult guardians; and• other additional and incidental businesses.
• Easing the governmental approval requirement for the acquisition of a Certain Advanced
Banking Service Company. Previously, government approval was required for theacquisition of more than 5% of its voting rights, but after the amendment, approval isrequired only for the acquisition of more than 50% of such entity’s voting rights (note,however, that a notification is required 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 consultation services and corporate matching services;• registered-type staffing services that contribute to the improvement of the bank’sbusiness;• 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.
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Elimination of income dependency restrictions on dependent services
Numerical standards mandated by regulation for the dependence on income for dependent
operations have been repealed. As a result, only the “conduct of business for the bank, etc.”
is required for a dependent business company. Moreover, the scope of the term “the bank,etc.” has now been expanded to include the bank’s subsidiary and affiliated companies
and the bank holding companies. Before the amendment, dependent business companies
that provided services to multiple banking groups were required to have total revenues
from those groups equal to or exceeding 90% of their total revenues, and to have revenues
from a bank or banks belonging to each group. After the amendment, dependent businesscompanies are subject to the same requirements as in the case of providing services only tothe parent banking group.
Partial changes in common and duplicated operations to the notification system
Among common and duplicate businesses, back-office operations, including operations
related to welfare and purchasing and managing office supplies, no longer require
government authorisation, and a notification to the government will suffice.
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.
• 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 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 a
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need 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 foreign leasing
companies and moneylenders that were also engaged in general business, with the 2021
amendment, banks are now permitted to acquire these businesses, and the scope of businessrestrictions has been extended to 10 years after the acquisition. Thereafter, if there is a needfor 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.
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 theso-called “comply or explain” approach. Under this approach, in case they do 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, anti-money laundering/counterfinancing of terrorism (“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).
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%.
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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 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 more strengthened measures than general companies in accordance with
the Guidelines on the Protection 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 business
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is 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.
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.
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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 (in order 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
and methods 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.
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.
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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, 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 publishedby the FSA. According to these Guidelines, specified business operators, including
financial institutions, need to identify and assess risks related to customers’ operations ina timely and appropriate manner and take mitigating measures commensurate with suchrisks (so-called “risk-based approaches”), while taking into account any changes in theinternational situation. The results of the Fourth Round Mutual Evaluation of Japan by
the Financial Action Task Force were published in August 2021, and Japan was rated as acountry 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.
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: (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 designated as a dispute resolution organisation. It is necessary for banks to conclude
a Basic Contract of the Implementation of Dispute Resolution Procedures with the JBA.
And, if a petition for a financial ADR is filed by a customer, the bank is obligated to executeprocedures based on the Contract.
Deposit insurance system by the DICJIn Japan, as in other countries, an insurance system is in place to protect depositors’ deposits
in the 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 assets of the failed financial institution.
In contrast, foreign currency deposits, certificates of deposit, and financial bonds are notcovered by this protection.

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Koji Kanazawa
Tel: +81 3 3539 1877 / Email: kanazawa_k@clo.gr.jp
Koji Kanazawa has advised various financial institutions in all aspects of
their operations, with a focus on financial regulatory matters. In particular,
with his experience working at the Financial Services Agency, Japanese
Government, he has worked on compliance/risk management issues offinancial institutions including AML/CFT, countermeasures against antisocial forces, and personal data protection. He has represented both
Japanese and overseas clients, including banks, 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, the Financial Instruments andExchange Act, the Money-lending Control Act, the Investment Act and theAsset Securitization Act), structured finance and litigations arising from thesales of financial instruments.
Katsuya Hongyo
Tel: +81 3 3539 1877 / Email: hongyo_k@clo.gr.jp
Katsuya Hongyo is working as a visiting attorney at a law firm overseas
and is a 2022 prospective partner attorney at Chuo Sogo Law Office, P.C.,
specialising in financial regulation, finance, M&A, and litigation. From
August 2017 to March 2020, Mr. Hongyo was seconded to the Japanese
Financial Services Agency. During this period, 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 crypto
assets or operate an information banking business. He also drafted the “Acton Special Provisions of the Antimonopoly Act”, making it easier for banks
to integrate their business. He also responded to inquiries from banks on aninterpretation 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 2022, Ninth Edition

118

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