The Emergence of LegalTech in Japan
By: Maurizio Raffone
Tags: Innovation, Legaltech, Fintech, Japan, Law

These days there is a tendency to add the suffix “tech” to any area of business and life and label it as a new trend or activity. Despite the buzz that these four letters bring about, there is a serious element to it.

Technology indeed permeates all aspects of what people do and has been an ever accelerating force which has brought about fundamental changes in several industries. With the advent of more refined applications of artificial intelligence, machine learning and blockchain technology, businesses and consumers are enjoying better, cheaper and more varied services and products across several industries. Financial Technology, aka FinTech, has prominently come to the fore of government policies and business strategies as an enabler of economic growth, financial inclusion and productivity improvements. In their FinTech report for the third quarter of 2018, CB Insights, a market research firms, highlights that there are now 31 FinTech unicorns globally, that is companies with a valuation of USD 1bn or more, and that more than USD 32bn was raised in equity capital for FinTech firms in the first 9 months of 2018.

As the FinTech industry grows and evolves, the products and services it develops become more sophisticated and complex. Often, financial technology advances clash with local rules and regulations, and several financial regulators have begun running regulatory sandboxes aiming to allow promising technology to be tested in a controlled environment before being deployed to the general public. However, it isn’t just technology and its uses which are evolving at a fast pace. The legal framework that accompanies the deployment of new technology is also evolving fast and law practitioners have started to develop new tools to not only cope with FinTech developments, but also to steer it and drive it forward.

LegalTech, albeit not as well known as FinTech, is an emerging practice aiming to achieve two main goals: the modernization of legal work through the use of new technology and the support of the development and implementation of technology-oriented services and products. An example of the former is the use of artificial intelligence to analyze legacy transaction documentation and spot inconsistencies or errors, whilst an example of the latter is the legal coding of smart contracts on blockchain.

The legal profession in Japan is highly respected and the bar exam one of the toughest in the world. Law firms have the pick of the crop among university graduates and several of the top law firms have strong partnership with leading US and British firms, an effective way used to provide their corporate clients with global support. In all this, innovation has not been a priority in the Japanese legal landscape, but we are seeing signs of changes afoot.

The rapid growth of the Japanese FinTech industry, and cryptocurrency market in particular, has seen a few law firms develop dedicated practices supporting these new industries. Anderson Mori & Tomotsune is a leading example of one well established Japanese law firm setting up a dedicated practice for FinTech.

But it is not just the big law firms that are working hard to modernize how legal services are provided in Japan. Maurice Rabb, Adjunct Professor of Law at Temple University in Tokyo and Founder & Managing Editor of LegalTechJapan.com, runs an active LegalTech community based in Tokyo which promotes discussions and events around new technology applied to legal practices and supports networking between legal professionals, technology enthusiasts and entrepreneurs.

Maurice recently shared with me that “in these hyperconnected and hyper-speed times, I believe that is important to break down industry silos and bring together professionals from various industries to discuss the complex opportunities and challenges before us with respect to emerging technologies.”

Through LegalTechJapan.com, Maurice and his team aim to introduce innovative technology and best practices in LegalTech from around the world to Japan. The website features Japanese-language articles on latest trends, use cases and thought pieces. The website also provides resources on how to improve the human lawyering element of LegalTech. Maurice notes: “Far too often there is a focus on the technology itself, without taking into consideration what knowledge, skills, and mindsets the actual user will need to develop in order to use the technology effectively and efficiently”. He hopes that LegalTechJapan.com will fill that void as well.

Although LegalTech is a fairly new concept, there cannot be progress in the applications of technology without the appropriate legal framework. As Japan works towards modernizing its financial services industry, LegalTech will become the linchpin upon which those services will be delivered.