Fintech landscape and initiativesGeneral innovation climate
What is the general state of fintech innovation in your jurisdiction?
In Japan, fintech innovation has been quite active in almost every area of finance. In particular, cryptocurrency-based businesses, cashless payment or mobile payment services, financial account aggregation services, robo-advisers and crowdfunding are well-known to the public.
It is worth noting that, in 2018, an increasing number of companies entered into or expanded their businesses in the mobile payment market. In 2018, several companies launched QR code payment services and, as a result, this market sector has become highly competitive. Further, insurtech appears not to be as active in comparison with other fintech areas; however, it is beginning to attract attention.Government and regulatory support
Do government bodies or regulators provide any support specific to financial innovation? If so, what are the key benefits of such support?
Yes. Financial regulators and policymakers in Japan are supportive of fintech innovation and new technology-focused entrants in the regulated financial services markets. For instance, the Ministry of Economy, Trade and Industry (METI) has been supportive of the blockchain industry and it has hosted the Blockchain Hackathon in February 2019, as part of a broader effort for the social implementation of blockchain technologies.
In June 2018, the Japan’s Economic Revitalisation Bureau, under the auspices of the Cabinet Secretariat, opened a cross-government one-stop desk for the regulatory sandbox in Japan (the Regulatory Sandbox). The Regulatory Sandbox can be used by both Japanese and overseas companies, enabling them to apply and receive approval for projects, not yet covered by present laws and regulations, in order to conduct demonstrations under certain conditions without the need for a legal amendment to cover such project. The Financial Services Agency (FSA) established a Fintech Experiment Hub in September 2017, which provides support to fintech companies and financial institutions for conducting unprecedented proof of concept (PoC). Note that although certain regulations are not suspended during the PoC, the Hub aims to allay concerns on the part of companies of violating applicable regulations during the PoC by providing advice, including legal advice.
Financial regulationRegulatory bodies
Which bodies regulate the provision of fintech products and services?
The FSA is the main regulatory body of fintech products and services that are regulated under the various financial regulations. The METI is also the regulatory body for certain payment services (eg, credit cards or other advanced payment services).Regulated activities
Which activities trigger a licensing requirement in your jurisdiction?
The arrangement of investment deals for an investment fund that invests mainly in securities or derivative transactions, constitutes a ‘financial instruments business’ under the Financial Instruments and Exchange Act (FIEA), and registration under the FIEA is required.
To arrange transactions for investments comprising mainly securities or derivatives, registration under the FIEA is also required.
Dealing in investments as principal or agent, under which investments are made mainly in securities or derivative transactions, may also constitute a ‘financial instruments business’ under the FIEA (in certain circumstances), and thus registration under the FIEA may also be required.
Giving advice on investments in relation to the value of securities or investment decisions on financial instruments under a contract for a fee may constitute an ‘investment advisory business’ under the FIEA, and registration is required.
Lending of money is regarded as a ‘moneylending business’, which generally requires registration as a moneylender under the Money Lending Business Act.
There is no specific licensing requirement for factoring transactions and invoice discounting. However, if a factoring transaction or invoice discounting is made with recourse, such transaction may be deemed as moneylending, and thus engaging in such transaction may require registration as a moneylender under the Money Lending Business Act.
Secondary market loan trading does not trigger a licensing requirement.
Acceptance of deposits is generally prohibited without a banking licence, under the Japanese Banking Act.
There is no licensing requirement for foreign exchange transactions. However, certain currency derivative transactions are regarded as ‘financial instruments business’ under the FIEA and registration is required thereunder.
A bank licensed under the Banking Act may conduct funds transfer services (which will generally include payment services). Other than banks, registration under the Payment Services Act as a funds transfer service provider is required before conducting payment services. If the payment service is provided as a later payment option using a credit card, then registration under the Instalment Sales Act is required for the issuers.Consumer lending
Is consumer lending regulated in your jurisdiction?
A lender conducting consumer lending activities (excluding the acceptance of deposits or instalment savings, which requires a banking licence under the Banking Act) must register as a moneylender under the Money Lending Business Act. The moneylender is also required to appoint a manager for each business office of the moneylending business that is registered under the Money Lending Business Act.
The total permissible lending amount is generally limited to one-third of the borrower’s annual income. The cap of the interest falls between 15 and 20 per cent per annum depending on the principal amount of the loan pursuant to the Interest Rate Restriction Act.Secondary market loan trading
Are there restrictions on trading loans in the secondary market in your jurisdiction?
There is no specific licensing requirement for trading loans. If a moneylender transfers loan claims, the transferee will be subject to the same restrictions under the Money Lending Business Act that are applicable to the original moneylender and the transferor must notify the operating transferee of such applicability of the restrictions.Collective investment schemes
Describe the regulatory regime for collective investment schemes and whether fintech companies providing alternative finance products or services would fall within its scope.
Under the FIEA, the solicitation of subscription of shares in collective investment schemes or investment management of assets of collective investment schemes, in principle, are regarded as financial instruments business. Therefore, business operators who conduct such activities must be registered as financial instruments business operators.
If a crowdfunding company raises funds for investment in a company through a form of silent partnership (tokumei kumiai - TK) , or if a social lending company raises funds for lending money to a company seeking funds through this form of partnership, the solicitation to invest in such partnership would, in principle, be considered as falling within the scope of a financial instruments business activity, and would thus need to be registered under the FIEA.Alternative investment funds
Are managers of alternative investment funds regulated?
In Japan, there are no regulations that particularly focus on alternative investment fund managers. Under the FIEA, investment managers acting for alternative investment funds such as hedge funds, private equity funds and real estate funds are regulated in the same manner as those acting for UCITS-like investment funds, which means they are not subject to the augmented regulations under the FIEA. It should be noted, however, that additional licences may be required under other laws (apart from the FIEA) for such alternative investment fund managers who conduct the business of managing investors’ funds by investing in real estate (not beneficiary rights therein).Peer-to-peer and marketplace lending
Describe any specific regulation of peer-to-peer or marketplace lending in your jurisdiction.
In Japan, individuals intending to engage in the business of lending money, or to act as an intermediary for the lending or borrowing of money, must be registered under the Money Lending Business Act. As such, peer-to-peer lending is structured so as to avoid the individual financier being required to be registered as a moneylender under the Act.
Marketplace lending in Japan generally takes the form of a TK partnership, under which a social-lending business provider collects funds from TK partnership investors. The social-lending business provider advances the funds to enterprises or individuals as loans. The operator then receives principal and interest payments from the enterprises or individuals and distributes the funds as dividends and returns to investors. In this structure, the operator is required to be registered both as a moneylender under the Money Lending Business Act (in order to provide the loans), and as a financial services provider under the FIEA, in order to solicit the purchase of interests in TK partnerships to investors.Crowdfunding
Describe any specific regulation of crowdfunding in your jurisdiction.
In Japan, crowdfunding is categorised as donation-based crowdfunding, reward-based crowdfunding and investment-based crowdfunding. Investment-based crowdfunding is further categorised as equity-based crowdfunding, fund-based crowdfunding and social-lending. See question 9 for regulations specific to social lending.
Reward-based crowdfunding is the most commonly used category of crowdfunding in Japan. It involves sales and purchase agreement of the reward. It is not regulated under the FIEA. However, certain regulations under the Specified Commercial Transactions Act apply, which, in particular, regulate descriptions in advertisements.
Equity-based crowdfunding and fund-based crowdfunding are regulated under the FIEA, which defines certain internet-based solicitations such as ‘electronic solicitation handling services’. Certain special provisions apply to electronic solicitation handling services from those that apply to ordinary solicitation handling services for securities. In order to encourage new market entrants for equity-based crowdfunding and fund-based crowdfunding, requirements for the registration as a financial instruments business operator were relaxed by the amendment to the FIEA in 2014 for business operators conducting such business within a certain limited scope.Invoice trading
Describe any specific regulation of invoice trading in your jurisdiction.
There is no specific regulation that applies to invoice trading in Japan. However, there are some legal and regulatory issues that must be noted. If there is an agreement between a supplier (ie, the seller of the invoice) and a buyer (ie, the payer under the invoice) to prohibit the transfer of invoices, there is a risk that the investor will not be able to acquire invoices pursuant to the Civil Code. Further, the debt transfer must be perfected by the buyer being notified of or approving the transfer, pursuant to the Civil Code, or it must be registered in the debt transfer registration system.
If invoice trading is with recourse to a supplier (ie, the seller of the invoice) when no repayment is forthcoming from the buyer, such transactions may be characterised as secured lending and the business would be required to obtain a moneylending business licence under the Money Lending Business Act.Payment services
Are payment services regulated in your jurisdiction?
Payment services fall within the scope of funds remittance transactions, which generally require a banking licence under the Banking Act. The Payment Services Act permits non-banking entities registered thereunder to engage in funds remittance transactions in the course of their business, provided that the amount of each exchange transaction is not greater than ¥1 million.
Funds remittance transaction is not defined in the Banking Act or any other acts, but according to a precedent set by a Supreme Court decision, ‘conducting a funds remittance transaction’ means accepting a request from a customer to transfer funds using the mechanism of transferring funds between parties at a distance without actually transporting cash, or accepting or actually carrying out the request.
If payment services fall into the above definition, the business operator could be required to obtain a banking licence or register under the Payment Services Act.Open banking
Are there any laws or regulations introduced to promote competition that require financial institutions to make customer or product data available to third parties?
On 1 June 2018, the amendment to the Banking Act came into force regulating Electronic Payment Intermediate Service Providers to facilitate open API. Electronic Payment Intermediate Service Providers are defined to include intermediaries between financial institutions and customers, such as entities using IT to communicate payment instructions to banks based on entrustment from customers, or entities using IT to provide customers with information of their financial accounts held by banks. Entities providing financial account aggregation services are also categorised as Electronic Payment Intermediate Service Providers. They are required to register with the FSA.Insurance products
Do fintech companies that sell or market insurance products in your jurisdiction need to be regulated?
Yes. In Japan, when a company (including a fintech company) conducts insurance solicitation (ie, acts as an agency or intermediary for insurance contracts), it must be registered as an insurance agent or insurance broker under the Insurance Business Act.Credit references
Are there any restrictions on providing credit references or credit information services in your jurisdiction?
In general, while credit references of individuals are subject to the Act on Protection of Personal Information, credit references of corporations are subject to confidentiality obligations under financial services regulations (such as Corporate Information under the Money Lending Business Act) and confidentiality agreements between financial institutions and corporations.
In Japan, personal credit information agencies collect information on the ability of persons to make credit repayments and provide such information to financial institutions that are members of such agencies. Financial institutions (banks or moneylenders) may not use information on the ability of individuals to meet repayments (personal credit information), for purposes other than the investigation of the ability of fund users to make repayments.
Can regulated activities be passported into your jurisdiction?
Japan is a member of the Asia Region Funds Passport (ARFP), which allows for a fund to be exported to another participating economy, provided that it complies with the regulations of the jurisdiction in which the fund is registered, the applicable regulations relating to the offer in the host jurisdiction, as well as the ARFP passport rules.
The FSA has released implementation guidelines for the application procedure for authorisation of offshore funds and registration of domestic funds under the ARFP framework. Under these guidelines, if an offshore ARFP fund intends to conduct a public offering in Japan, it must first submit a notification statement to the Japan Securities Dealers Association (JSDA) for its review in respect of whether the fund meets the selection criteria under the JSDA’s rules. Upon the JSDA confirming that the offshore fund meets selection criteria, the fund must then submit notification documents to the FSA for its review to confirm that the fund satisfies the ARFP requirements.Requirement for a local presence
Can fintech companies obtain a licence to provide financial services in your jurisdiction without establishing a local presence?
It will depend on the nature of the services that the foreign fintech company intends to provide; however, generally speaking, foreign fintech companies will be required to have a subsidiary or a business office in order to obtain a licence under applicable laws. For example, overseas moneylenders cannot be registered under the Money Lending Business Act without having a place of business in Japan.
Sales and marketingRestrictions
What restrictions apply to the sales and marketing of financial services and products in your jurisdiction?
Providers of financial products and services should pay attention not only to their respective regulating laws and regulations and the guidelines issued by their regulatory or self-regulatory bodies, but also to the general customer protection legislations such as the Act against Unjustifiable Premiums and Misleading Representations, the Consumer Contract Act, and the Act on Specified Commercial Transactions when advertising, selling and marketing financial products and services.
With respect to investment products and services such as securities, derivatives, ‘deemed securities’ (eg, limited partnership interests) and investment advisory and management services, only registered financial instruments business operators or financial institutions (FIBOs) are permitted to sell and market such investment products or services under the FIEA. As a general rule, a FIBO is prohibited from soliciting investment products or services that are not suitable for an investor in light of his or her knowledge, experience, financial conditions and purpose of investment. A FIBO is required to deliver an explanatory document on the details of investment products or services to investors in advance.
With respect to insurance products, only insurance agents or brokers are permitted to sell and market insurance products for their affiliated insurance company under the Insurance Business Act. As a general rule, an insurance company, agent or broker is required to provide information regarding insurance contracts to customers. An insurance company, agent or broker is required to understand each customer’s intention, recommend and explain the insurance product meeting the customer’s intention, and offer to the customer an opportunity to reconfirm whether the recommended product meets the customer’s intention. It should be noted that the rules on advertising, sales and marketing of investment products and services under the FIEA apply mutatis mutandis with respect to variable annuity and insurance products and certain foreign currency-denominated insurance products.
Change of controlNotification and consent
Describe any rules relating to notification or consent requirements if a regulated business changes control.
A shareholder holding more than 5 per cent but less than 20 per cent of the voting rights held by all of the bank’s shareholders (a Major Holder of Bank’s Voting Rights) is required to file a notification with the FSA within five business days. A Major Holder of Bank’s Voting Rights is required to file an amendment report, normally within five business days if its holding ratio increases or decreases by 1 per cent or more or any matter described in the notification has been changed. A shareholder who intends to hold, whether individually, jointly or as a group, 20 per cent or more of the voting rights (a Bank’s Major Shareholder) is required to obtain authorisation from the FSA in advance. A Bank’s Major Shareholder may be ordered by the FSA to make a report or submit materials relating to the relevant bank’s business and financial conditions. Moreover, a Bank’s Major Shareholder holding more than 50 per cent may be ordered to submit the relevant bank’s business improvement plan.
A shareholder of an insurance company is subject to substantially the same rules as those applicable to a Major Holder of Bank’s Voting Rights and Bank’s Major Shareholder outlined above.
A shareholder holding, in principle, 20 per cent or more of the voting rights held by all of the Type I FIBO’s or investment manager’s shareholders (a Major Shareholder) is required to file a notification with the competent Local Financial Bureau without delay. A Major Shareholder who comes to hold 50 per cent or more of the voting rights (a Specified Major Shareholder) is required to file a further notification without delay. A Major Shareholder may be ordered by the competent Local Financial Bureau to make a report or submit materials relating to the relevant Type I FIBO’s or investment manager’s business and financial conditions and, if it falls under any ground for disqualification pursuant to the FIEA, to cease to be a Major Shareholder. A Specified Major Shareholder may be ordered to take any necessary measures to improve the relevant Type I FIBO’s or investment manager’s business and financial conditions.
Financial crimeAnti-bribery and anti-money laundering procedures
Are fintech companies required by law or regulation to have procedures to combat bribery or money laundering?
A person who gives, or offers or promises to give, a bribe to a domestic or foreign public officer can be subject to a criminal penalty under the Criminal Code or, as the case may be, the Unfair Competition Prevention Act. While fintech companies are not explicitly required by law to put in place anti-bribery procedures, they are expected to do so as a part of their effective internal control.
The Act on Prevention of Transfer of Criminal Proceeds (the APTCP) requires ‘specified business operators’ (most financial service providers are included therein) to:
- verify each customer’s identification, purpose of transaction, occupation and, in the case of a corporate customer, identification of its representatives and ultimate owners and its purpose of business;
- verify each customer’s financial condition in the case of a high-risk transaction;
- create and keep a record of verification and transaction reports; and
- report any suspicious transaction to the competent authority.
A fintech company falling under a specified business operator is required to put in place anti-money laundering procedures under the APTCP and the FSA’s Guidelines for Anti-Money Laundering and Combating the Financing of Terrorism.Guidance
Is there regulatory or industry anti-financial crime guidance for fintech companies?
Peer-to-peer and marketplace lendingExecution and enforceability of loan agreements
What are the requirements for executing loan agreements or security agreements? Is there a risk that loan agreements or security agreements entered into on a peer-to-peer or marketplace lending platform will not be enforceable?
In terms of a peer-to-peer or marketplace lending platform in Japan, it had been construed that each lending participant would be required to be registered as a moneylender under the Money Lending Business Act, unless there were multiple anonymised borrowing participants. However, the FSA has recently published its interpretation that each lending participant is not required to be so registered if:
- all the borrowing participants are corporations;
- the platform is formed as a TK, which is an agreement under the Commercial Code to be entered between the platform operator registered as a moneylender and each lending participant; and
- the agreement prohibits each lending participant from contacting any borrowing participants for the purpose of collecting money.
In response to this, a self-regulatory organisation named the Type II Financial Instruments Firms Association has recently published Q&As summarising the practical points to be considered when forming and operating a lending platform.
In terms of enforceability of loans, the portion of any interests (including lending-related fees) exceeding 15 per cent or higher (or up to 20 per cent) of the loan principal amount shall be null and void under the Interest Rate Restriction Act.Assignment of loans
What steps are required to perfect an assignment of loans originated on a peer-to-peer or marketplace lending platform? What are the implications for the purchaser if the assignment is not perfected? Is it possible to assign these loans without informing the borrower?
As a general rule, a loan claim may be assigned by an agreement between the transferor and the transferee and can be perfected by notice to or acknowledgement by the borrower with an instrument bearing a fixed date stamp.
However, it is less likely that the loan claims are assigned or perfected in a peer-to-peer or marketplace lending platform. See question 22.Securitisation risk retention requirements
Are securitisation transactions subject to risk retention requirements?
Financial institutions subject to the Basel Capital Accord in Japan are subject to risk retention requirements with respect to their securitisation exposures, while the originators or sponsors are not directly subject to the same requirements. Such a financial institution is required to apply an increased regulatory capital risk weighting (ie, three times higher than that otherwise applied to the compliant securitisation exposure, up to 1,250 per cent) to its securitisation exposure unless it can confirm that:
- the originator retains at least 5 per cent of the aggregate credit risk of the relevant securitised assets in any of the prescribed ways; or
- the relevant securitised assets are not inappropriately originated based on the originator’s involvement in or the quality of the relevant assets, or any other circumstances.
However, it is less likely that the risk retention requirements should be considered in a peer-to-peer or marketplace lending platform. See question 22.Securitisation confidentiality and data protection requirements
Is a special purpose company used to purchase and securitise peer-to-peer or marketplace loans subject to a duty of confidentiality or data protection laws regarding information relating to the borrowers?
While it is less likely that a special purpose company is used to purchase and securitise peer-to-peer or marketplace loans (see question 22), a lending platform operator extending loans to the borrowing participants must comply with the Personal Information Protection Act (the PIPA), which is one of the primary data protection laws in Japan.
Artificial intelligence, distributed ledger technology and crypto-assetsArtificial intelligence
Are there rules or regulations governing the use of artificial intelligence, including in relation to robo-advice?
No. A robo-adviser using artificial intelligence is regulated under the FIEA generally in the same way as an ordinary investment adviser or manager.Distributed ledger technology
Are there rules or regulations governing the use of distributed ledger technology or blockchains?
Are there rules or regulations governing the use of cryptoassets, including digital currencies, digital wallets and e-money?
While the use of cryptoassets is not directly regulated, a service provider who deals with digital currencies, digital wallets or e-money may be regulated as a virtual currency exchange service provider, a prepaid payment instruments issuer or, as the case may be, a fund transfer service provider under the Payment Services Act (the PSA).
A ‘virtual currency exchange service provider’ is defined as an entity that, as a business:
- purchases, sells and exchanges virtual currencies;
- acts as a broker, intermediary or agent with regard to transactions listed in (i); or
- maintains users’ money or virtual currencies in relation to transactions listed in (i) or (ii).
It should be noted that the amended PSA is expected to be implemented in the first half of 2020. Under the amended PSA, the term ‘virtual currency’ will be renamed as ‘cryptoasset’. An entity that engages merely in holding users’ cryptoassets in custody will be also regulated under the PSA.
A ‘prepaid payment instruments issuer’ is defined as a person who issues prepaid payment instruments for its own or a third party’s business.
A ‘fund transfer service provider’ is defined as an entity which transfers users’ funds (not exceeding ¥1 million per transaction) as a business.Digital currency exchanges
Are there rules or regulations governing the operation of digital currency exchanges or brokerages?
Yes. See question 28.Initial coin offerings
Are there rules or regulations governing initial coin offerings (ICOs) or token generation events?
It had not been clear whether initial coin offerings or any other methods of token generation were governed by the PSA or the FIEA, or both. The amended FIEA, which is expected to be implemented in the first half of 2020, introduces the concept of electronically recorded transferable rights (ERTRs) to clarify the scope of tokens governed by the FIEA. The amended PSA clarifies that ERTRs do not fall under ‘cryptoassets’ governed by the PSA.
Tokens generated in security token offerings will constitute ERTRs if they meet the three requirements of ‘collective investment scheme interests’ under the FIEA (mentioned below) and are represented by proprietary value transferable by means of an electronic data processing system. Collective investment scheme interests are deemed to be formed if:
- investors contribute cash or other assets to a business;
- the cash or other assets so contributed are invested in the business; and
- investors have the right to receive dividends of profits generated from investments in the business.
ERTRs will be subject to the disclosure rules under the FIEA. Offering of ERTRs will need to be handled by a Type I FIBO registered under the FIEA.
On the other hand, tokens that do not fall under the definition of ERTRs but are used as payment instruments are likely to constitute ‘cryptoassets’ or ‘prepaid payment instruments’ governed by the PSA.
Data protection and cybersecurityData protection
What rules and regulations govern the processing and transfer (domestic and cross-border) of data relating to fintech products and services?
The PIPA applies to a person who processes and transfers personal data. The general and industry-specific (including the financial services industry) guidelines regarding protection of personal information are issued by the Personal Information Protection Committee and the relevant government authority (including the FSA), although they do not particularly focus on the fintech industry.
The PIPA requires a person who handles personal information database in the business (a personal information handling business operator or PIHBO), as a general rule:
- not to handle any personal information beyond the scope necessary for achieving the purpose of use;
- not to transfer any personal data to a third party without obtaining prior consent of the relevant data subject;
- to keep the personal data accurate and updated;
- to put in place necessary and appropriate measures to maintain the personal data in a safe manner;
- to disclose the personal data in hand to the relevant data subject whenever requested; and
- to correct and delete or cease to use the personal data in hand if the relevant data subject so requests with reasonable grounds.
In the case of the transfer of personal data within Japan, as an exception to the general rule, a PIHBO may transfer personal data (excluding sensitive personal information) to a third party without obtaining prior consent of the relevant data subject, if the PIHBO notifies the matters prescribed by the PIPA to the relevant data subject and the Personal Information Protection Committee.
In the case of the transfer of personal data to a third party located overseas, as a special rule, a PIHBO may not transfer personal data unless:
- the PIHBO obtains the relevant data subject’s prior consent to the transfer of personal data to a third party located overseas;
- the relevant third party is located in a jurisdiction having an equivalent personal information protection framework to the PIPA; or
- the relevant third party puts in place equivalent personal information protection measures to those required of a PIHBO under the PIPA.
The aforementioned general rules do not apply with respect to anonymised data. Instead, the PIPA requires a PIHBO to comply with the standard prescribed by the PIPA and the relevant government guidelines when creating and handling anonymised data to ensure that nobody can identify any specific individual or recover personal information from such data. A person who handles anonymised data in its business shall, when transferring it to a third party, publish the items of information relating to individuals contained in it and clearly state that the information to be transferred is anonymised.Cybersecurity
What cybersecurity regulations or standards apply to fintech businesses?
The Center for Financial Industry Information Systems publishes ‘FISC Security Guidelines on Computer Systems for Banking and Related Financial Institutions’ (the FISC Guidelines). The FSA refers to the FISC Guidelines when inspecting and monitoring fintech business operators. The FSA’s inspection manuals and supervisory guidelines show the points of focus in connection with cybersecurity risk management.
Outsourcing and cloud computingOutsourcing
Are there legal requirements or regulatory guidance with respect to the outsourcing by a financial services company of a material aspect of its business?
Broadly speaking, financial services companies may outsource a part of their business to a third party but are required, for such purposes, to put in place any necessary measures to ensure the outsourced business will be appropriately performed pursuant to the relevant laws and regulations. Such measures include, without limitation the:
- selection of an appropriate service provider that is eligible to perform the outsourced business;
- monitoring and supervision of outsourced service provider’s performance of duties; and
- replacing or ceasing to retain the outsourced service provider if it is found that the outsourced service provider does not appropriately perform its duties.
Are there legal requirements or regulatory guidance with respect to the use of cloud computing in the financial services industry?
Intellectual property rightsIP protection for software
Which intellectual property rights are available to protect software, and how do you obtain those rights?
Patent or copyright may be available to protect software. Software may be registered as a patent under the Japanese Patent Act if it can be deemed as ‘computer program, etc’. Business methods themselves are not patentable; however, a patent may be granted for business methods which are combined with computer systems or other devices. Productions in which thoughts or ideas are expressed in creative ways (and that fall within the literary, scientific, artistic or musical domain) are protected by copyright.
Patent protection needs to be registered as a result of the successful application with the Japan Patent Office (JPO).IP developed by employees and contractors
Who owns new intellectual property developed by an employee during the course of employment? Do the same rules apply to new intellectual property developed by contractors or consultants?
Under the Japanese Patent Act, a patent for an invention is owned by the inventor. If the inventor is an employee, he or she will own the patent. The right to obtain a patent may be assigned to an employer in accordance with the rules established by the employer. Under the Japanese Copyright Act, the authorship of a work that is created by an employee during the performance of the duties for their employer is attributed to the employer. An author retains its moral rights to the subject matter of the copyright. Contractors and consultants can usually acquire the right to obtain a patent or copyright for inventions developed by them.Joint ownership
Are there any restrictions on a joint owner of intellectual property’s right to use, license, charge or assign its right in intellectual property?
Under the Japanese Patent Act, when a patent is jointly held, each of the joint owners may independently use the patent. However, the assignment or grant of the patent requires the consent of the other joint patent holders. On the other hand, Under the Japanese Copyright Act, the assignment, licensing and use of the copyrighted work by one of the joint copyrights holders cannot be made without the consent of all other joint copyright holders.Trade secrets
How are trade secrets protected? Are trade secrets kept confidential during court proceedings?
Trade secrets can be protected under the Japanese Unfair Competition Prevention Act. Under the Act, a trade secret means a production method, sales method, or any other technical or operational information useful for business activities that is controlled as a secret and is not publicly known. During court proceedings, the court may, upon motion of a party, issue orders for protecting trade secrets including prohibiting parties and their counsel from disclosing relevant trade secrets to any other persons.Branding
What intellectual property rights are available to protect branding and how do you obtain those rights? How can fintech businesses ensure they do not infringe existing brands?
Brands may be protected by a trademark. A trademark needs to be registered as a result of the successful application with the JPO. Also, the protection under the Japanese Unfair Competition Act may be available for brands, whether registered or not. It must be proven that the product or indications is well known or famous. In order for fintech business to ensure that they do not infringe existing brands, they need to conduct research of existing trademarks. They can utilise J-PlatPat, the database operated by the National Centre for Industrial Property Information and Trading (www.j-platpat.inpit.go.jp/), for initial screening.Remedies for infringement of IP
What remedies are available to individuals or companies whose intellectual property rights have been infringed?
A patent holder or the exclusive licensee or copyright holder can claim for actual damages for losses incurred as a consequence of the infringement, and the Japanese Patent Act and the Copyright Act provide presumptive provisions for the damages. Also, they can seek injunctions against infringing third parties, as well as actions required to prevent the infringement. In addition, they can make claims for unjust enrichment, licence fee equivalents, and seek to restore honour or credit, for example by publication of an apology. Infringing third parties may be subject to criminal penalties under the Japanese Patent Act and Copyright Act.
Are there any specific competition issues that exist with respect to fintech companies in your jurisdiction?
We are not aware of any specific competition issues that currently exist with respect to fintech companies in Japan. In May 2019, the METI, the Japan Fair Trade Commission (JFTC) and the Ministry of Internal Affairs and Communications jointly published reports that provide options for regulation of platform businesses based on the Interim Discussion Paper submitted by the Study Group on Improvement of Trading Environment surrounding Digital Platforms. The JFTC mainly focuses on possible abuse of superior bargaining position by the giant digital platforms.
Are there any tax incentives available for fintech companies and investors to encourage innovation and investment in the fintech sector in your jurisdiction?
There are no tax incentives specifically targeting fintech companies and investors. That being said, the Japanese tax system provides angel investors with the following tax incentives:
- reduction of income tax; or,
- reduction of the capital gains from the transfer of shares in the target company.
Also, the R&D tax incentive system has been adopted and is often revised with the aim of maintaining and strengthening initiatives that support Japan’s global competitiveness.Increased tax burden
Are there any new or proposed tax laws or guidance that could significantly increase tax or administrative costs for fintech companies in your jurisdiction?
We are not aware of any new or proposed tax laws or guidance that could significantly increase tax or administrative costs for fintech companies in Japan.
What immigration schemes are available for fintech businesses to recruit skilled staff from abroad? Are there any special regimes specific to the technology or financial sectors?
Foreign nationals recognised as ‘highly skilled foreign professionals’ will be given preferential immigration treatment. There are three categories of activities of highly skilled foreign professionals:
- advanced academic research activities;
- advanced specialised or technical activities; and
- advanced business management activities.
A person who is recognised as a highly skilled foreign professional can enjoy preferential treatment, including permission for multiple purposes of activities and a grant of a five-year period of stay.
Update and trendsCurrent developments
Are there any other current developments or emerging trends to note?Current developments45 Are there any other current developments or emerging trends to note?
The Study Group on the Financial System under the Financial System Council has been discussing a shift from an entity-based regulatory framework to a function-based, cross-sectoral regulatory framework, under which the same regulations apply to activities with the same functions and risks. The relevant interim report was published in June 2018. The study group is extensively discussing significant revision to laws and regulations on money transfers and payments and financial service intermediary business, in light of unbundling and rebundling of financial services.