The Financial Services Agency of Japan (“JFSA”) published its policy assessment and strategic priorities entitled “JFSA’s Initiatives for User Oriented Financial Services in a New Era - Financial Services Policy: Assessments and Strategic Priorities 2019” on August 28, 2019, which outlines the progress of the JFSA’s policy and challenges identified from July 2018 to June 2019, indicates the goals that it aims to achieve, and the policy measures for the next year through June 2020. One of the three main initiatives is the Finance Digitalization Strategy.
Financial Digitalization Strategy
The JFSA announced the Financial Digitalization Strategy (“Strategy”) in 2018 comprising a total of 11 measures for the improvement of financial services in light of rapid and drastic changes in financial markets. The JFSA is moving ahead on the Strategy in particular focusing on five important areas this year.
Data strategy for utilization and privacy protection
The JFSA encourages the data projects of financial institutions such as the “information bank” (for details please refer to Japan: green light for information banking) in order to provide advanced services to customers. It is essential to protect customers’ personal information and privacy to enhance data utilization. So it is expected that businesses related to customer identification or KYC will be promoted because of the Strategy and the introduction of e-KYC, which has been legally allowed since November 30, 2018. Any information other than personal information should be treated based on the concept of Data Free Flow with Trust which is one of the new initiatives of Japanese Prime Minister Abe to facilitate cross-border data flows among countries with high levels of privacy protection, data security, and intellectual property rights.
The JFSA has supported various players aiming to create new financial services through a variety of channels. The agency set up the FinTech Innovation Hub in July 2018 to enhance information gathering. The FinTech Support Desk which was launched in December 2015 has been a one-stop contact point for inquires and the exchange of information on FinTech. Further, the FinTech Proof-of-Concept Hub and Regulatory Sandbox regime introduced in June 2018 (for details please refer to Japan: sandbox reform) has provided support to cultivate new technologies and businesses and is expected to be increasingly utilized. In addition, the Financial Market Entry Consultation Desk provides advice on Japan’s financial regulations to foreign business operators that plan to establish a business base in Japan. It works closely with the Tokyo Metropolitan Government’s “Financial One-Stop Support Service” to assist foreign business operators with setting up their businesses in Tokyo.
The JFSA has been promoting initiatives that utilize open architecture. It will further encourage financial institutions to introduce open API and make agreements with Electronic Payment Service Operators to facilitate Open Banking. Digital banks are not yet permitted in Japan, though the JFSA is carefully considering if they satisfy regulatory requirements.
Function-based, cross-sectoral financial regulations
The JFSA is considering the implementation of a function-based and cross-sectoral regulatory framework for payment fields and financial services intermediation (for details please refer to Japan: wholesale regulatory rethink). A bill addressing the new regime is expected to be submitted to the Diet in 2020.
Digitalization of financial regulations and infrastructure
The JFSA is working on implementing the RegTech/SupTech Ecosystem to develop efficient regulations.
It is important to strengthen a cyber security management system for financial services including outsourcing, in particular against potential cyberattacks during the 2020 Tokyo Olympic and Paralympic Games, and grasp the latest trends in technology, such as block chain.
Based on the Strategy, further development of the Fintech/Innovation market in Japan can be expected in 2020.
Partner, Atsumi & Sakai
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Naoki Kanehisa is a partner in Atsumi & Sakai and currently heads the firm’s London office, from where he has been advising UK and European clients, including fintech companies, on setting up their businesses in Japan. Naoki has extensive experience in banking and finance, financial regulations, joint-ventures and M&A. He has presented seminars on fintech in London and Paris, including: "Procedures and Licencing Requirements for Japan Market Entry for Asset Management and Fintech Businesses" for the “Tokyo-London: Financial Seminar 2018", hosted by the Tokyo Metropolitan Government.