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December 14, 2015
(January 25, 2019 Updated)
Financial Services Agency

 FinTech Support Desk

Based on the FSA’s “Strategic Directions and Priorities 2015-2016” (cf. Annex), as a new approach to adapt to the spreading FinTech trend in business practices (in terms of applying the latest IT technologies in financial services), the FSA launched “FinTech Support Desk” in December 2015 as a one-stop contact point for inquiries and exchange of information on FinTech.

FinTech Support Desk accepts a wide-range of inquiries on various matters in finance from those who currently operate FinTech businesses or those who intend to start FinTech startups with innovative ideas. FinTech Support Desk also welcomes general opinions, requests, and suggestions concerning innovative FinTech businesses, thereby proactively seeking chances for exchanging information and opinions.

Common inquiries received at FinTech Support Desk (FAQ) are available below.

Contact


Please contact FinTech Support Desk by email at the address below.
E-mail Address: fintech@fsa.go.jp
Office hours: Weekdays from 9:30 a.m. to 6:15 p.m. (JST).

Attention


FinTech Support Desk may request outline materials of the intending business scheme.
FinTech Support Desk may introduce contact points of other ministry, agency, or organization, depending on the content of the inquiry.

FAQ

The FSA published the following questions as excerpts from the inquiries (FAQ) to FinTech Support Desk.

【Regulations and procedures for registration and notification】

Q:  What kinds of regulations exist for FinTech businesses? We have heard that the registration/notification with the FSA and/or the Local Finance Bureaus is required to start a business. What are we required to do in particular?

A:  Due to diversity and a wide range of potential of FinTech business, the applicability of financial laws and regulations such as the “Banking Act,” the “Financial Instruments and Exchange Act,” and the “Payment Services Act” may vary depending on the respective business schemes. Some businesses may neither be subject to any financial regulations nor be required to carry out registration/notification. Therefore, it is preferable to consult with FinTech Support Desk about your intended business scheme. FinTech Support Desk also welcomes inquiries on your business ideas at the initial planning stage.

 

Q:  Suppose that registration/notification as a financial service provider is necessary to start a FinTech business, where can we find the contact point for such registration/notification, and what kind of regulatory procedure should we take?

A:  For ensuring transparency and efficiency in administration, the FSA provides an outline of the standard screening process for applications for new registration with the FSA/Local Finance Bureau as well as the corresponding contacts based on the respective types of inquiries/applications. For details, please refer to the following URLs. Should you have any further queries in respect of application procedures, please feel free to contact FinTech Support Desk. (fintech@fsa.go.jp)

 

Q:  How did the discussion turn out pertaining to the methods of identity verification for non-face-to-face transactions in FinTech business other than having a customer send an identification document or its copy, and then sending documents related to the transaction to the customer’s address by registered mail as a postal item requiring no forwarding?

A:  As prescribed in Japan's “Growth Strategy 2017” (approved by the Cabinet in June 2017), in order to deepen discussions for efficient identity verification in tandem with FinTech development, the Fintech Association of Japan (FAJ), the Japan Association of New Economy (JANE), and the FSA jointly established the “Study Group on Online Trading in the Age of FinTech.”
Based on the outcomes from the Study Group, the FSA and the National Police Agency (NPA), which has the main jurisdiction over the “Act on Prevention of Transfer of Criminal Proceeds,” carried out further discussions on efficient identity verification.
As a result, the NPA, the FSA and other competent administrative agencies have published the “Order to Amend the Ordinance for Enforcement of the Act on Prevention of Transfer of Criminal Proceeds,” which sets out rules for new identity verification methods that are to be completed online.
 (Most of the amendments were promulgated and enforced on November 30, 2018, while the remainder will be enforced on April 1, 2020).
The new methods for verifying natural persons are as follows:

(1) that a business entity receives a picture of a photo ID document and a picture of the customer’s face (cf. Article 6 (1)(i)(e) of the said Ordinance).
* Video communication via the internet will also be allowed as a method.

(2) that a business entity receives the IC chip data from a customer’s photo ID document and a picture of the customer’s face (cf. Article 6 (1)(i)(f) of the said Ordinance).

(3) that a business entity receives either a picture of an ID document, the issuance of which is limited to one sheet, or the IC chip data from an ID document and confirms that depositary financial institutions such as banks or credit card companies have already verified the customer (cf. Article 6 (1)(i)(g)1. of the said Ordinance).

(4) that a business entity receives either a picture of an ID document, the issuance of which is limited to one sheet, or the IC chip data from an ID document, and remits money to the customer’s deposit account, for which the customer has already been verified by the depositary financial institution, and the business entity receives from the customer the image data containing the internet banking screen shot showing the necessary information to verify the remittance of money (cf. Article 6 (1)(i)(g)2. of the said Ordinance).



【Virtual currency (crypto-asset)】

Q:  We intend to start a virtual currency (crypto-asset) related business. Please advise us with the overview of applicable regulations and the regulatory procedures required to start the business.

A:  The “Payment Services Act” (amended in April 2017) stipulates the following business activities are considered as “virtual currency exchange services,” in which a service provider is required to register with the FSA:

(1) Exchange between a virtual currency and a fiat currency, or exchange between a virtual currency with another virtual currency;

(2) Intermediary, brokerage, or agency services for the business activities prescribed in (1); or

(3) Management of users’ money or virtual currency in connection with the business activities prescribed in (1) or (2).

 
For user-protection and anti-money laundering, a registered virtual currency exchange service provider is under obligations including, but not limited to, the following:
  • To provide prior explanation and information to service users about the characteristics of a virtual currency, such as facts that (i) it is not a fiat currency; (ii) it is not backed by a fiat currency and its value may fall below the purchased price; and (iii) its value is not guaranteed;
  • To establish a system risk management framework;
  • To manage the money and virtual currency deposited by service users separately from its own money and virtual currency, as well as to undergo an audit by a certified public accountant or an audit firm, with regard to the state of segregation management; and
  • To perform the obligations under the “Act on Prevention of Transfer of Criminal Proceeds” such as customer identification at the time of transaction, preparation and keeping of transaction records, and reporting of suspicious dealings to the authorities.
Whether certain electronic data falls under “Virtual Currency” under the “Payment Services Act” will be determined on a case-by-case basis pursuant to Article 2 (5) of the “Payment Services Act.”

Q:  We are considering an ICO (Initial Coin Offering). What are the regulatory requirements for an ICO?

A:  In general, an ICO collectively means activities to raise funds from the public using a digital token issued by a company or an individual. An ICO may fall within the scope of the “Payment Services Act” and/or the “Financial Instruments and Exchange Act” depending on its ICO structure and nature of the token.

(1) Application of the “Payment Services Act”

○ When a token issued in an ICO satisfies either of the requirements prescribed in (i) or (ii) below, the token is construed as “Virtual Currency” under the “Payment Services Act.”

(i) The token can be used for paying for goods and services, and mutually exchangeable with a fiat currency wherein unspecified persons act as counterparties.

(ii) The token is mutually exchangeable with virtual currencies wherein unspecified persons act as counterparties.

(2) Application of the “Financial Instruments and Exchange Act”

○ When a token issued in an ICO is a dividend type and satisfies either of the requirements prescribed in (i) or (ii) below, the token is construed as the equity interest in a collective investment scheme under the “Financial Instruments and Exchange Act.”

(i) The token is purchased by a fiat currency.

(ii) The token is purchased by a virtual currency (crypto-asset), but it is practically deemed equivalent to a purchase using a fiat currency.

※ Definition of the equity interest in a collective investment scheme under the “Financial Instruments and Exchange Act”: the right of an equity investor to receive dividends of profits arising from the business conducted by using money invested or contributed by the equity investors therein.

    The applicability of the “Payment Services Act” and/or the “Financial Instruments and Exchange Act” is determined depending on a case-by-case basis. For further details, please send an inquiry to FinTech Support Desk. (fintech@fsa.go.jp)



【Open API and electronic payment service】
Q:  What are the objectives of the amendments to the “Banking Act” in 2017?

A:  The amendments to the “Banking Act” in 2017 introduced legislative measures inclusive of the regulatory framework pertaining to electronic payment service providers*.  The amendments were aimed at promoting appropriate cooperation and collaboration between financial institutions and finance-related IT companies as well as to ensure user protection, in response to rapid IT development and its impact on financial services.

* The new regulatory framework requires:
  • electronic payment service providers to be registered, whereby they are obliged to ensure information security management of service users and to conclude a contract with financial institutions to which the service providers are connected; and
  • financial institutions to prepare and disclose the standards pertaining to the conclusion of contracts with electronic payment service providers

Q:  What is the meaning of electronic payment service?
A:  An “electronic payment service” means the services utilizing IT such as:
(i)  A service that enables money transfers to multiple accounts per request with one click; and

(ii) A service that automatically creates and keeps a household account book by obtaining and aggregating account information including account balance and transaction records from banks.


Q:  What are the exemptions from the regulations for electronic payment services?

A:  Article 1-3-3 of the “Ordinance for the Enforcement of the Banking Act” stipulates that the following four categories of activities are exempted from the regulations for electronic payment services, unless any of those activities are conducted by obtaining IDs and/or passwords from depositors. The reason for the exemptions is that the following activities are less likely to result in insufficient protection of service users.

(1) Transmission of settlement instructions conducted for the purpose of making periodical payments from a depositor to a particular person

(2) Transmission of settlement instructions conducted for the purpose of money transfer from a depositor to the depositor’ own account

(3) Transmission of settlement instructions conducted for the purpose of making payments from a depositor to the national and local governments

(4) Transmission of settlement instructions conducted by (i) a depositor’s counterparty to sales contracts on goods and services or (ii) the counterparty’s agent, for the purpose of making payments for the sales contracts

Registration as an electronic payment service provider is not required as far as the provided service remains within the scope of these exemptions.

Q: What are the registration requirements for electronic payment services?
A: The following are key registration requirements for electronic payment services:
(1) The amount of net assets is not below zero

(2) The provider develops the system to implement electronic payment service appropriately and securely

In the registration screening process pertaining to the requirement of (2) above,  considering the nature of the electronic payment service that utilizes rapidly evolving IT technologies wherein a service provider frequently obtains customers’ account information, in order to ensure user protection, regulatory authorities place particular emphasis on the assessment of the system risk management structure which can be prone to impair customers’ interests/benefits such as through an information leakage or an illegal fund transfer exploited by external parties using authentication information via unauthorized accesses.
The following are typical check items subject to registration screening wherein the business characteristics of an applicant are taken into consideration in light of the business scale/scope, contents of service, levels of importance of the information treated, and the computer system framework adopted as well as its role shared within the scope of its electronic payment service. Please note that the registration screening is conducted from a risk-based perspective, and not all of the following items are subject to screening when it is found that there are no issues in particular from the user protection perspective.
[Example checklist to assess development status of the system that ensures the appropriateness and security of electronic payment service]
  • Awareness of system risks in electronic payment services
  • System risk management
  • System risk assessment
  • Information security management
  • Cyber security management
  • System planning/development/operations management
  • System audit
  • Outsourcing management
  • Contingency plan
  • Response to system failure
 

Q:  What is the difference between the electronic payment service and bank agency service? Is it possible to engage in both services with single registration/authorization of either business?

A:  Bank agency service is an act of acting as an agent or intermediary for banks to conclude a contract that sets out either of the following deeds: (i) acceptance of deposits or installment savings; (ii) provision of loans or discounting of bills; and (iii) exchange transactions. Bank agency services are conducted based on the entrustment from banks, whereas electronic payment services are conducted based on the entrustment from depositors. In this respect, if certain services are based on the entrustment from both banks and depositors, those services can fall within the scope of both a bank agency service and an electronic payment service, wherein such services shall be subject to the respective regulations of a bank agency service and an electronic payment service. For example, when a bank agency service provider engages in an electronic payment service, the provider needs both registration as an electronic payment service provider and approval to conduct a bank agency service.



【Robo-advisor (automated investment advisor)】

Q:  What kind of regulatory procedures will be required by financial laws and regulations to provide investment-related robo-advisor services?

A:  So-called robo-advisor activities can be categorized into various financial businesses, and the requirements of registration and its type pursuant to the “Financial Instruments and Exchange Act” vary depending on actual services provided in each business. Therefore, it is encouraged to consult with the FSA’s FinTech Support Desk for details of regulations beforehand.

Case in point:
A robo-advisor presents an “asset portfolio by (standard) asset class” and/or offers “securities and financial instruments” that are considered to be suitable for a customer based on the customer’s answers to various questions (e.g. risk appetite);
  • When such a presentation/offer is provided as a part of services for customers (inclusive of potential customers) without compensation and conclusion of a contract for the presentation/offer,
=> The registration pursuant to the “Financial Instruments and Exchange Act” is NOT required.
  • When such a presentation/offer is given for a charge/fee and a contract is concluded for the offer of the proposed securities and financial instruments,
=> The registration as an investment advisory business is required pursuant to the “Financial Instruments and Exchange Act.”


【E-money/e-point】

Q:  What regulatory procedures are required under financial laws and regulations to start a new business mainly on prepaid e-money and/or e-points?

A:  The “Payment Services Act” stipulates that prepaid payment instruments are “certificates, etc., numbers, markings, or other signs” (inclusive of those whose values are recorded by a computer, server, or etc.) that are “issued for prepaid/pre-loaded values”, which can be used for payment for purchase/lease of goods and services. E-money (electric money) and e-point that are issued for prepaid/pre-loaded values fall within the category of prepaid payment instruments.

 
Prepaid payment instruments are classified into the following two types:
  • 1 those which can be used for purchase of goods and services only from the issuer of prepaid payment instruments (prepaid payment instruments for own business); and
  • 2 those other than 1 (prepaid payment instruments for third-party business).

* If the total amount of the outstanding balance of the prepaid payment instruments for one’s own business prescribed in 1 exceeds 10 million yen on the record date (on March 31 and September 30 every year), the issuer shall give notification to the Local Finance Bureau within two months from the record date.

* The issuer of the prepaid payment instruments for third-party business prescribed in 2 shall register with the Local Finance Bureau in advance.

The issuance of a prepaid payment instrument with a validity period not exceeding six months is NOT subject to regulations for prepaid payment instruments, and hence notification and registration are not required for both aforesaid types of issuers.


【Funds Transfer Service】

Q:  What regulatory procedures are required by financial laws and regulations to start a business offering a funds transfer service?

A:  When a person/an entity engages in exchange transactions of one million yen equivalent or less in the course of trade, registration as a funds transfer service provider is required. For exchange transactions exceeding one million yen, a license for banking business pursuant to the “Banking Act” is required.
In general, “exchange transaction” is considered to be a conduct of an acceptance and/or implementation of transferring funds with the entrustment from a customer utilizing the system to transfer funds without a direct transport of cash between persons at a distance. (Decision of the Third Petty Bench of the Supreme Court of Japan as of March 12, 2001).
Funds transfer service providers are subject to certain regulations, particularly those in which they are required to preserve not less than 100% of the outstanding amount of funds that are in the middle of being transmitted or are pending by means of deposits.



【Crowdfunding】

Q:  What procedures would be required under financial laws and regulations to offer a crowdfunding platform for the solicitation of investment via the internet?

A:  Crowdfunding is generally classified into three types of schemes, namely, charity donation type, purchasing type, and investment type. (i) For the first two types, as far as the crowdfunding is used as a way to solicit charity donations or to receive the payment of consideration in exchange for goods or services, or (ii) as far as an investor does not receive a return exceeding the amount of his/her contribution, registration/notification is NOT required.
The investment type of crowdfunding may require registration and/or notification pursuant to the “Financial Instruments and Exchange Act” depending on the investment methods.

For details, please refer to the following URL:


【InsurTech】

Q:  Are InsurTech companies required to get licenses in all cases pursuant to the “Insurance Business Act?”

A:  It depends on what type of business you plan. “InsurTech” has various meanings. When the business you intend to start is considered to be “insurance business”, the license on “insurance business” is required* by the “Insurance Business Act”. Also, when the intended business is considered to be “insurance solicitation”, the registration on “insurance solicitation” is required by the Act. The requirements and procedures vary based on the respective business schemes.

* Under certain conditions, you may not be required a license but registration. For details, refer to the next question regarding “Low-Cost, Short-Term Insurance Business”.

 
(Note 1) “Insurance business” prescribed in Article 2 (1) of the “Insurance Business Act” is the “business of underwriting the risks listed in the items of Article 3 (4) or the items of Article 3 (5) through insurance where insurance premiums are received under contracts to pay a fixed amount of insurance claims in connection with the life or death of individuals or through insurance where insurance premiums are received under contracts to compensate for damage caused by a certain fortuitous accident, or through any other class of insurance wherein the insurer undertakes to pay a certain amount of insurance proceeds contingent upon the life or death of a person and whereby the insurer receives insurance premiums.”
(Note 2) “Insurance solicitation” is to act as an agent or intermediary for conclusion of an insurance contract, as stipulated in Article 2 (26) of the “Insurance Business Act.”
Should you have any further queries on your intended business, please contact FinTech Support Desk. (fintech@fsa.go.jp)

Q: What is “Low-Cost, Short-Term Insurance Business”?

A: The system for small-claims and short-insurance businesses has been adopted since April 1, 2006. If the insurance business under the “Insurance Business Act” you intend to engage in is limited solely to insurance underwriting within a certain business scale, you may engage in business upon registration as “Low-Cost, Short-Term Insurer”.

【Minimum amount of stated capital, etc.】
  • Insurance period: two years for non-life insurance, one year for life insurance and medical insurance respectively
  • Insurance proceeds

* Insurance proceeds per one insured person should be within the scope of the amounts of the following categories, and the total amount of the respective insurance proceeds shall be 10 million yen or less.

- Serious disability/death due to illness
: 3 million yen
- Disability/death
: 3 million yen
- Hospitalization benefits, etc. due to illness and physical impediments
: 800 thousand yen
- Serious disability/death due to physical impediments
: 6 million yen
- Non-life insurance
: 10 million yen
The total amount of the insurance proceeds per insurance policy holder is 100 times or less of the amounts in the aforementioned categories

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