Skip to content
Back to Professional-Advisers-Fintech Rankings

JAPAN: An Introduction to FinTech Legal

Naoki Kanehisa
Fumiko Oikawa
Kenichi Tanizaki
Tatsuhiro Hirayama
Atsumi & Sakai Logo
View firm profile

Chambers PA: FinTech 2022: Overview 


Authored by Yuri Suzuki (Partner), Fumiko Oikawa (Partner), Naoki Kanehisa (Partner), Kenichi Tanizaki (Partner) and Tatsuhiro Hirayama (Associate)
Atsumi & Sakai


The last year or so has seen numerous legal developments which will have an impact on the conduct of the FinTech industry; the major developments are summarised below and include:

• A government action plan to tighten Anti Money Laundering (AML)/Counter Financing of Terrorism (CFT)/Know Your Customer (KYC) regulations following the Financial Action Task Force’s report of August 2021, which concluded that the standards of AML/CFT systems in Japan should be improved to ensure their effectiveness.

• A new regulatory regime for Security Token Offerings.

• Making the requirements to qualify as a professional investor more flexible in order to encourage more risk-taking investments in unlisted companies.

• The introduction of a new financial services business category of Financial Service Intermediaries.

• Expanding the scope of businesses banks are permitted to conduct such as services to enhance digitalisation and new businesses such as FinTech, selling apps/IT systems and staff dispatching.

• Changes to the general data protection regime (effective on 1 April 2022) to expand both its extraterritorial application and the requirements for cross-border transfers of personal information.

Results of the FATF Fourth Round Mutual Evaluation Report and Future Trends
Japan subject to an “Enhanced Follow-up”

On August 30, the Financial Action Task Force (FATF), an intergovernmental organisation which develops international standards for combating money-laundering and terrorist financing, announced the results of the Fourth Round Mutual Evaluation Report conducted in 2019 and placed Japan under an enhanced follow-up.

The Evaluation Report measures achievements across 40 items relating to the extent that the FATF Recommendations have been instituted by laws and regulations (Technical Compliance) and 11 items related to the extent that the measures have been achieved by such laws and regulations (Immediate Outcomes). Japan was rated as “partially compliant” or “non-compliant” in 11 out of 40 FATF Recommendations with regard to technical compliance items, and eight items out of 11 were evaluated as “moderate” with regard to immediate outcomes. In terms of technical compliance, there was some improvement over the results of the Third Evaluation Report of 2008. On the other hand, the rating of AML measures for Non Profit Organisations was downgraded from the previous results.

For immediate outcomes, although the adoption of the supervisory and enforceability guidelines prepared by the Financial Services Agency was a milestone to help financial institutions understand and implement their AML/CFT obligations, the report concluded that “the level of the standard should be increased to ensure effective AML/CFT systems.”

With respect to financial institutions’ AML/CFT measures, it was further pointed out that the ongoing customer due diligence, such as updating information on existing customers and ultimate beneficial ownership (UBO) identification/verification are insufficient. In response to the evaluation results, the government established the “Anti-Money Laundering, Counter-Terrorist Financing and Proliferation Financing Council” jointly chaired by the National Police Agency and the Ministry of Finance and drafted a three-year action plan to improve the current situation.

Content of Action Plan 

Particularly noteworthy items in the government’s action plan are as follows:

(a) “Comprehensive implementation of ongoing customer due diligence by financial institutions,” specifically, strengthening monitoring of transactions, and reinforcing risk-based AML/CFT/proliferation financing measures.

(b) “Adoption of jointly established transaction monitoring system,” specifically, in the interests of standardisation, implementing a joint system for transaction screening and monitoring. The project for adoption of the jointly established AML/CFT system is spearheaded by the Japanese Bankers Association. By leveraging AI and other technologies, it is intended to improve the effectiveness and efficiency of AML/CFT frameworks across the entire financial industry.

(c) “Improving the transparency of information on beneficial ownership,” specifically, all specified business operators (who are required to comply with KYC regulations) are to strengthen their information resources concerning beneficial owners. In response to this, following types of systems are being implemented.

(i) Corporations, meaning stock companies (kabushiki kaisha), general incorporated associations (ippan shadan hojin) and general incorporated foundations (ippan zaidan hojin) but excluding limited liability companies (godo kaisha), must, at the time of their incorporation, register their “Beneficial Owner” which should specify the following regarding any person(s) who is a beneficial owner: (1) name, (2) address, (3) date of birth, (4) nationality, (5) gender, and (6) whether such person is an “organised crime group.”

(ii) A system whereby a Registry Office will retain documents giving information on beneficial owners of a stock company (kabushiki kaisha) is scheduled to be introduced in 2022. Under this system, stock companies will be able to request registrars of a Registry Office to retain a “List of Information on Beneficial Owners,” and to apply for provision of the copy of that list to the stock company. The registrar is expected to review the documents submitted with reference to the information held by the Registry Office in order to confirm whether the submitted document is accurate. Upon completing this review, the registrar will retain this list and add a remark to the effect that this list is being retained.

However, measures (i) and (ii) are only available for certain entities such as stock companies, and the information to be registered with regards to beneficial owners are limited. Two types of beneficial owners can be registered but the other two types of beneficial owners, e.g., a person who exercises substantial control over a stock company through transactions with such stock company, are not covered. These are recognised as shortcomings from a practical perspective and additional systems to further improve the transparency of information on beneficial owners is desirable.

Capital Market Trends 

In June 2021, the FSA’s Working Group on Capital Market Regulations of the Financial System Council published its second report, which discusses how to provide growth funding to prepare for a new post-COVID economy and society. Following the publication of the report, the systems below are being reviewed with the aim of streamlining the provision of growth funding.

1. Professional Investor system 

Under the Professional Investor System in the Financial Instruments and Exchange Act, if a Financial Instruments Business Operator, etc. (FIBO) conducts transactions with a Professional Investor (tokutei toushika), it is exempted from application of the regulation on activities applicable to a FIBO that is intended to correct the information gap between a FIBO and a customer, such as the obligation to deliver a document upon conclusion on a contract etc. to ensure regulatory flexibility. All individual investors are generally classified as General Investors but an individual can opt to become a Professional Investor if they satisfy certain requirements as those whose knowledge, experience and property is equivalent to that of Professional Investors. Under the current system, for an individual to be able to opt to become a Professional Investor, they must meet requirements relating to net assets and investment-type financial assets (at least JPY 300 million each) as well as trading experience (at least one year). However, the scope of individuals who can be classified as Professional Investors will be expanded by allowing consideration of annual income, professional experience, qualifications held and frequency of trades in addition to the current criteria. Further, to ease classification as a Professional Investor, a FIBO will also be able to consider assets held and trading experience with other FIBOs, in addition to assets and experience with itself, towards satisfaction of those requirements. This revision is expected to increase funding provided by individual Professional Investors.

Moreover, the use of the private placement system for Professional Investors is currently limited to professional markets (such as the Tokyo Pro Market), which are only available to Professional Investors, but the rules will be amended to permit use of the system on other markets, effectively allowing Professional Investors to invest in a broader range of instruments such as the shares of unlisted companies.

2. Establishment of a framework for secondary trades of unlisted shares

Solicitation rules for Professional Investors will also be established to allow investment into unlisted shares through secondary trades. Additionally, the shareholder community system, which is designed to support financing of local companies, currently limits participation to issuers’ officers and employees, but the scope will be expanded to include Professional Investors so as to promote the issuance and circulation of unlisted shares.

3. Equity crowdfunding  

The total amount of securities that a company can issue over any period by equity crowdfunding must currently be less than JPY 100 million and is calculated by adding (i) the total amount of securities issued by equity crowdfunding, (ii) the total amount of securities issued within one year prior to the commencement of the equity crowdfunding and (iii) the total amount of securities the subscription period for which overlaps with the equity crowdfunding. The current rule will be revised by limiting the amount of the equity crowdfunding to that issued within one year, making it possible to raise JPY 100 million or more by utilising equity crowdfunding and other funding such as venture capital. Further, the maximum amount a Professional Investor may subscribe for in an equity crowdfunding (JPY 500,000) will be abolished. These revisions are expected to expand the use of equity crowdfunding and provide start-ups with additional sources of funding.

4. Tokyo Stock Exchange venture fund market  

A review will be conducted to expand the use of the venture fund market, including by lifting the prohibition on debt financing, in order to promote investments in unlisted start-ups, etc. by General Investors.

Recent Developments in Security Tokens 

Under the amended Financial Instruments and Exchange Act (the FIEA) which came into effect in 2020, tokenised shares and bonds, as well as tokenised trust beneficial interests and collective investment scheme equity, are treated as securities, and therefore subject to requirements for issuers to disclose information to investors, as well as restrictions on purchasing and solicitation by intermediary service providers for buying and selling security tokens. The amendment also made it clear that the act of issuing security tokens in exchange for crypto assets is regulated under the FIEA. On the other hand, the Payment Services Act applies to crypto assets as a method of payment.

With the legal framework established, issuing security tokens began in earnest, and we have even seen issuances of security token bonds and real estate-backed security token offerings (STOs). Further, Osaka Digital Exchange Co., Ltd. was established for the purpose of operating the first Japanese proprietary trading system dealing in security tokens.

There are expectations for real estate-backed security tokens to function as a new real estate investment vehicle which provides liquidity and is accessible to individual investors purchasing small volumes. It is also possible to tokenise TK interests (effectively limited partnership interests) in a GK-TK scheme, which is a popular method for real estate securitisation in Japan. However, since a security token is simply a token indicating a right under private law, perfection against third parties when transferring a TK token still requires either consent of or notice to a GK with a certificate with an officially-attested date stamp. In such cases separate procedures are needed in addition to those performed on the blockchain, which have been identified as a possible obstacle to liquidity, though the electronic officially-attested date system established in 2021 is expected to offer a solution.

Introduction of Financial Service Intermediary Business

The Act on Provision of Financial Services and related laws and regulations came into effect from 1 November 2021.

Before the effective date, in order to act as an intermediary between a customer and a financial institution, it was necessary to obtain separate sector specific licences under the Banking Act, the Financial Instruments and Exchange Act, the Insurance Act or the Money Lending Act. However, after 1 November 2021, the Act on the Provision of Financial Services (PFSA) will introduce a system for the registration of one-stop intermediary service providers of financial services.

A Financial Service Intermediary may only act as an "intermediary", but not as an "agent". They are not required to belong to a particular financial institution and are expected to work and collaborate with financial institutions as business partners. Foreign companies are allowed to be registered as a Financial Service Intermediary but are required to have a representative and an office in Japan in order to do so.

Under the PFSA regime, Financial Service Intermediary Business means any of the following as a business:

• Deposit, etc. Intermediary Business Operations;

• Loan Intermediary Business Operations;

• Securities, etc. Intermediary Business Operations;

• Insurance Intermediary Business Operations;

• Electronic Financial Service Intermediary.

Financial Service Intermediaries are required to hold sufficient security to ensure that they have the resources to compensate users for damages, and to provide information relating to the limitation of powers. From a user protection perspective, a Financial Service Intermediary shall not, for any reason, receive deposits of money or other property from customers.

Recent Amendment to the Banking Act 

The Banking Act was amended in May 2021 to expand the scope of services which banks are permitted to provide.

After this amendment, banks will be able to conduct businesses as incidental business under the Banking Act which will enhance digitalisation and a sustainable society by utilising the resources of their banking business. These businesses are to include services such as selling apps and IT systems which banks have developed for their own use, data analysis, marketing, and advertising.

Further, the scope of services which banks can conduct through their subsidiaries will be also expanded and banks are now permitted to have an “enhanced banking service company” as a subsidiary. The scope of services of such “enhanced banking service company” will be expanded, allowing it to provide services which are expected to contribute to the establishment of a sustainable society, such as business for improving productivity in an industry.

Some of these activities permitted through banks’ subsidiaries will be subject to less stringent authorisation standards, namely those services which are determined to be socially reasonable for a banking group to provide, and which are not, based on the bank’s past business, etc., (i) considered to entail significant risks in the bank’s engagement into a different industry (ii) an abuse of superior bargaining position or (iii) transactions with a conflict of interest. These changes are expected to make it easier for banks to expand into new businesses such as fintech, selling apps and IT systems developed for their own use, data analysis, marketing, advertising, and staff dispatching.

Similar amendments have been made to the Insurance Business Act and the Financial Instruments and Exchange Act, expanding the scope of services provided by insurance companies and securities companies. The amended Banking Act will come into effect in late November 2021.

Extraterritorial application of APPI and cross-border transfers of personal information

1. When transferring personal data outside of Japan based on the consent of the relevant individual, the 2020 amendment to the Act on the Protection of Personal Information (APPI) requires business operators handling personal information to provide to the individual (i) the name of the specific country to which data will be transferred, (ii) information on the existence and an outline of the personal information protection systems in such country, and (iii) information on the measures for the protection of personal information taken by the receiving party in the foreign country. If the business operator handling personal information is unable to specify the name of the country to which personal data will be transferred, it must provide (i) information to the effect that it is unable to specify the name of the country, (ii) the reason for being unable to do so, and (iii) other reference information (if available). Further, if the business operator is unable to provide information on the measures for the protection of personal information taken by the receiving party in the foreign country, then it must say so and provide information on the reason why.

On the other hand, if personal data is transferred without the relevant individual’s consent, the business operators handling personal information must (i) ensure that the receiving party in the foreign country has established a system for continued appropriate handling of personal information, and (ii) provide information to the relevant individual on that system upon the individual’s request.

2. Prior to the APPI amendment, the rights which the Personal Information Protection Commission could assert against foreign operators were limited to non-binding measures such giving instructions, advice or recommendations. Following the 2020 amendment, however, the Personal Information Protection Commission will be able to exercise rights such as demanding reports and issuing orders against any business operators which provide goods or services to persons residing in Japan, and failure to comply will be subject to penalties.

3. These amendments will come into effect on 1 April 2022.


It is anticipated that these changes in laws and regulations will lead to more opportunities for foreign FinTech companies to operate their businesses in Japan or to do business with Japanese financial institutions. However, they will have to comply with expected new AML/CFT regulations and must take care to abide by the new regime for cross-border transfers of personal data.