JAPAN: An Introduction
The Japanese Fintech Trend
In Japan, a wide variety of fintech services have been provided in recent years as a result of technological innovations such as blockchain. Along with the spread of fintech services, in addition to amendments to laws on remittance and payment services, regulations on crypto-assets, security tokens and stablecoins have been introduced, and amendments have been made to laws on Web3. Thus, recent regulations on fintech services have changed significantly, and fintech companies need to respond to such changes in a timely manner.
Remittance
When a private company other than a bank or other deposit-taking financial institution provides a remittance service, it is required to register as a Funds Transfer Business Operator under the Payment Services Act (PSA). Previously, with regard to the Funds Transfer Business, there was a limit of JPY1 million per remittance transaction. However, due to the increase in the number of Funds Transfer Business Operators and the diversification of remittance services, the PSA was amended in 2020 to divide the Funds Transfer Business into three categories, and the limit per remittance transaction was abolished for the Type I Funds Transfer Business. However, there are still issues with remittance services over JPY1 million, such as the inability to provide so-called wallet functions, as strict regulations have been established for Type 1 Funds Transfer Business Operators regarding the retention of funds.
In April 2023, amendments to subordinate laws and regulations of the Labour Standards Act enabled digital payroll payments through accounts provided by Funds Transfer Business Operators. In August 2024, PayPay Corporation was the first designated Funds Transfer Business Operator handling digital payroll payments.
Banking as a Service (BaaS)
In addition, banking functions are increasingly being introduced into applications provided by private companies other than banks and other financial institutions. In 2018, the Banking Act was amended to create the Electronic Payment Service, which promoted the opening up of bank APIs (Application Programming Interfaces). In addition, in 2021, the Financial Services Intermediary Business was established as a new type of regulated business that intermediates multiple financial services across banking, securities, and insurance with the enactment of the Act on the Provision of Financial Services.
In practice, for example, since the need for a licence may depend on the specifications of the application, this should be taken into account when developing service specifications.
Payment
In recent years, the shift to cashless payments has progressed and numerous electronic money services and QR code payment services have become available. According to the Ministry of Economy, Trade and Industry (METI), the ratio of cashless payments in Japan, in terms of payment amount, has increased from 15.3% in 2013 to 39.3% in 2023.
The type of licence required depends on the details of the payment service. For example, service provider licences include “Issuers of Prepaid Payment Instruments” or “Funds Transfer Business Operators” (electronic money) under the PSA, “Comprehensive Credit Purchase Intermediaries” (credit cards) under the Instalment Sales Act, and banks (debit cards) under the Banking Act.
As for the most recent topic, the 2022 Amendment to the PSA established regulations for “High-Value Electronically Transferable Prepaid Payment Instruments”. Issuers of High-Value Electronically Transferable Prepaid Payment Instruments are required to submit a business implementation plan and establish an AML system by June 2025.
Blockchain
Crypto-assets
In Japan, there are no specific regulations regarding the issuance of crypto-assets, but the 2016 Amendment to the PSA established regulations on the Crypto-asset Exchange Business from 2017. As a result of the development of the regulatory system, the crypto-asset market has expanded, and the volume of spot transactions in 2023 was JPY11.3494 trillion. The number of crypto-assets handled has also increased rapidly, and currently there are more than 100 types of crypto-assets that can be handled in Japan.
In May 2024, a crypto-asset exchange business operator experienced a leak of JPY48.2 billion worth of crypto-assets, and a business improvement order was issued against the company by the authority. The changes in the regulatory environment for crypto-assets are particularly dramatic and require careful attention.
Security tokens
As crypto-assets are increasingly being used as a means of raising capital, the 2019 amendment to the Financial Instruments and Exchange Act introduced regulations for security tokens from 2020. These regulations include stricter disclosure rules for issuers of security tokens and stricter financial instruments business regulations for those who handle them.
Since then, the number of cases of security token issuances in Japan has been increasing, especially for investment in real estate. The development of a trading platform for security tokens, such as the Osaka Digital Exchange (ODX), is also progressing.
Stablecoins
Previously, the application of exchange transaction (kawase-torihiki) regulations and prepaid payment instrument regulations were being discussed for stablecoins. However, in light of the increase in the number of stablecoin issuance cases overseas, the PSA was amended in 2022 and stablecoins became regulated as Electronic Payment Instruments from 2023.
Currently, there are no operators registered as an Electronic Payment Instruments Service Provider, and Electronic Payment Instruments have not yet been issued. However, in October 2024, the Financial Services Agency of Japan (JFSA) approved the Japan Virtual and Crypto assets Exchange Association (JVCEA) as a “certified association for payment service providers” related to Electronic Payment Instruments Services, and other institutional arrangements are steadily underway.
NFTs
As the market for blockchain games has expanded, there has also been an increase in the number of NFT issuance cases. In 2023, the JFSA guidelines were revised to clarify certain criteria regarding the applicability of NFTs as crypto-assets under the PSA. As a result, in practice, if the price per minimum trading unit is JPY1,000 or more, or if the quantity issued divided by the minimum trading unit is 1 million or less, it is considered not to fall under the category of crypto-assets, which is an important criterion for the issuance of NFTs.
In practice, the “Guidelines for NFT Business” published by the Japan Crypto-asset Business Association (JCBA) plays an important role. These guidelines were also revised in August 2024.
In addition, the number of so-called Real-World Asset (RWA) token issuance cases is also increasing. A pilot project on RWA tokens is currently being conducted by METI, and there are growing expectations for the development of transaction rules and best practices through public-private co-operation.
Fintech-Related Policy Trends
In Japan, the Web3 Project Team (Web3PT), established by the ruling Liberal Democratic Party (LDP), has taken the lead in Web3-related policies in the government. The Web3PT publishes a collection of policy proposals as a “white paper” every year.
From October 2024, the Financial System Council’s Working Group on Payment Service Systems, etc, established by the JFSA, has been studying the need to regulate cross-border collection agency services and advance payment services, as well as the procedures for refunds in the event of bankruptcy of Funds Transfer Business Operators and Crypto-Asset Exchange Business Operators. Based on the results of these studies, relevant laws may be revised after 2025, so it will be necessary to pay close attention to this ongoing process.
Therefore, in the Japanese fintech field, since relevant laws and guidelines are established and revised every year, it will be necessary to keep a close watch on such trends in 2025.