The first meeting of the Financial Services Council’s “Fund Settlement System Working Group” was held on September 25, 2024. We have provided an explanatory document from the secretariat in advance that summarizes the working group’s background, issues, reference materials, etc. The FSA has published the official minutes of this meeting. The outline is as follows.
Mr. Miura, a member of the secretariat, provided an overview of the current situation surrounding financial services in Japan and explained the six main themes to be discussed.
Procedures for returning funds held by funds transfer companies
Cashless payments are rapidly permeating daily life in Japan. According to the Fund Settlement Act, it takes at least 170 days to process the return of funds if a funds transfer provider goes bankrupt. A discussion is needed to consider other options. We realize faster refunds while taking into account the impact on the entire system, such as direct refunds from banks and trust companies to users.
Cross-border payment collection agency service
Cross-border payment collection agency services have emerged, making it easier to move funds across borders for a variety of purposes. Unlike domestic remittances, cross-border transactions involve higher risks, such as delays due to the use of international remittance systems and differences in laws and regulations. It is necessary to consider whether foreign exchange trading regulations should apply to such services.
Regarding responses to bankruptcy of virtual currency exchange companies that only handle spot transactions
While the scale of stablecoins is rapidly expanding, the market size of virtual currency exchanges remains large. If an exchange that handles only spot transactions goes bankrupt, Japanese authorities are currently unable to issue domestic asset preservation orders. The market size of virtual currency exchanges remains large. Discussion is needed to consider regulatory measures to prevent damage. Risk that crypto assets held by users will be leaked in the event of business failure.
Investment of funds to support stablecoin issuance
The stablecoin market is growing, and specified trust beneficiary stablecoins are attracting attention in Japan. Currently, in Japan, 100% of the issued amount of stablecoins is only allowed to be used as demand deposits. Taking this situation into consideration, and taking into account the international trend of allowing investment in assets other than deposits under certain conditions, it is necessary to discuss the future direction of the management of funds that support stablecoins in Japan.
Regulation of payment intermediary services
Payment intermediation services come in many forms, and it can be difficult to determine the applicable legal framework. For example, there are questions about the classification of salary advance services and bill payment agency services under current laws such as the Money Lending Business Act and the Fund Settlement Act. Discussions should aim to clarify the relationship of such services to existing financial services such as loans and remittances.
Participation of foreign financial institutions in syndicated loans
Syndicated foreign currency loans have become a viable financing option for Japanese companies, but current regulations require foreign financial institutions to establish branches in Japan to participate in such financing. This requirement could pose a significant barrier for foreign financial institutions. Discussion is necessary. Review current regulations and consider the balance between regulatory burdens and the interests of Japanese companies.
Following the Secretariat’s briefing, members and observers shared the following insights and concerns:
Clarity and predictability of regulatory scope: Several Commissioners emphasized the need for clear definitions and boundaries around regulated entities and services to ensure predictability for both consumers and businesses. did. Focus on user protection and financial stability: Many members emphasized that the protection of users and businesses is of paramount importance. Ensuring financial system stability while fostering innovation. The need for a balanced approach: Several members emphasized the importance of striking a balance between fostering innovation and mitigating risks associated with new financial services. Thorough analysis of existing regulations: Members emphasized the need for careful regulation. Analyze the existing regulatory framework and identify specific areas for improvement or modification. Consideration of international trends and best practices: Many members emphasized the importance of learning from international experience and aligning with global best practices where appropriate. Addressing the issue of intermediary payment services: Several members expressed concern about the potential risks associated with intermediary payment services and called for a thorough review of their legal classification and appropriate regulatory measures. The need for a global perspective on cross-border payment services: Several members noted the importance of international cooperation and coordination. Effectively regulate cross-border payments. The secretariat will set the next meeting date based on the availability of members and notify members accordingly. Further discussions will be held to delve deeper into each topic with the aim of developing concrete proposals for regulatory changes.
overall impression
The working group’s first meeting successfully laid out the main discussion points and provided valuable insights from members and observers. The discussion highlighted the rapidly evolving financial services environment and the need for a balanced and forward-looking approach to regulation. While recognizing the importance of user protection and financial stability, Members recognized the need to stifle innovation and avoid creating unnecessary barriers to entry for new businesses. Future meetings are expected to delve deeper into each topic, explore potential solutions, and pave the way for a more robust and adaptive regulatory framework for the future of financial services in Japan.
