The fintech movement is growing on a global scale; however, in Japan, prior to the FinTech Bill, an institutional framework for fintech had not been sufficiently developed.
In response to this rapid change, on May 26, 2017, a bill to amend Japan’s Banking Act (the FinTech Bill) was enacted in the Diet in Tokyo. This bill proposes to regulate certain fintech activities in Japan, including creating a registration system for individuals wishing to carry out an Electronic Payment Intermediate Service.
New Fintech Rules at a Glance
- “Electronic Payment Intermediate Service” (EPIS) will be newly defined in the Banking Act so that any person wishing to carry out an EPIS without obtaining a registration.
- Providers of an EPIS (providers) must execute a contract with a financial institution before providing an EPIS to customers.
- Financial institutions which seek to execute a contract with a provider must use efforts to develop a system pertaining to an introduction of an Open API2.
Proposed Amendments to the Banking Act
Recently, Japan’s Financial Services Agency proceeded to develop measures to regulate fintech businesses, in particular, for settlement related services. The Working Group on the Financial System concluded that it was a priority to promote open innovation between financial institutions and fintech companies. Reflecting on the conclusions from these initiatives, the FinTech Bill was enacted on May 26, 2017, and promulgated on June 2, 2017. The outline of the FinTech Bill is described below. The date of enforcement of the FinTech Bill (the Enforcement Date) will be prescribed by a Cabinet Order, within a period not exceeding one year from the date of promulgation.
Regulation of Fintech Companies and Financial Institutions
In the FinTech Bill, definitions will be developed for the terms “Electronic Payment Intermediate Service” and “Electronic Payment Intermediate Service Providers.” The registration system for providers will be introduced and no person may carry out the service without obtaining a registration. Providers will be required to develop a structure and maintain a financial basis necessary for the proper and reliable implementation of the EPIS. Lack of either requirement will be grounds for refusal of the registration. Providers must execute a contract with a financial institution before providing the service for their customers.
Financial institutions must establish and publish the standards which providers must satisfy in order to conclude the contract with them by the day on which nine months have elapsed from the FinTech Bill’s promulgation date. Financial institutions which seek to execute a contract with providers must use efforts to develop a system pertaining to an introduction of an Open API by the date which will be prescribed by a Cabinet Order, within a period not exceeding two years from the FinTech Bill’s Enforcement Date. The provisions with respect to these obligations have already been enforced since the date of promulgation.
1 Ken Kato practises in Japan with the firm Anderson Mori & Tomotsune and was recently on secondment with Torys.
2 API (Application Programming Interface) means a program for a third party other than a bank to utilize the function of the banking system by connecting into the system. Open API means that a bank provides its API with the providers and consents to their access to the bank system.
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