Japan changes fund settlement law

In Japan, the rapid growth of online markets as well as the record number of tourists mean that cross-border money transfer business is more prevalent than ever. As transfers via the banking network are often too expensive for frequent money issuers, alternative solutions for money transfers have developed considerably to meet social needs. One of the key solutions for such growing demand for money transfer in Japan. However, the single license structure under the current law was not flexible enough for various fund transfer needs. On June 5, 2020, the Japanese Diet adopted amendments to the law, summarized in this GT alert.

1. Collection agency services for individuals

Collection agency services, that is, collecting funds sent by a payer to settle a monetary obligation on behalf of a client, with a payee as the creditor of that monetary obligation, and then immediately transferring the money. funds collected from the client, have long been recognized as services that do not require an MT license, although the business model involves some kind of money transfer function. The Japanese government guidance explained that while collection agency services for business clients have not raised major concerns, collection agency services for individual clients may pose problems, such as the risk that payers are required to redundantly pay both the agent and the payee. As such, the amended law states that these collection agency services for individual recipients fall under money transfer transactions that require an MT license. By implication, the Japanese government has approved collection agency services to corporate clients without an MT license.

2. Multiple MV license class

Currently, the law provides for a one-time money transfer license scheme where you can pay up to one million yen per transaction. However, there are increasing demands for the allocation of larger amounts in a single transfer transaction, especially from MV operators dealing with corporate clients. On the other hand, there are also requests to relax the need for MT license applications for those who pay only smaller amounts. Based on these market voices, the Japanese government amended the law and defined three types of MT licenses:

  • Type 1 MT business license authorizes a statutorily unlimited amount per payment transaction. However, the licensed TM operator must put their own maximum house amount in the business plan as one of the type 1 authorization application documents. As this license requires government authorization, it requires a higher level of examination of applications than other types of MT licenses.

  • Type 2 MT business registration replaces the current MT license. Thus, those who hold the current MT business registration are deemed to hold an MT type 2 business registration. This MT type 2 license only allows the payment of one million yen per transaction. Current MV licensees can conduct type 2 MV activity with current licenses; After the entry into force of the amended law, holders of deemed MT type 2 licenses must reapply for a type 2 MT license.

  • Type 3 MT business registration only allows a registered operator to deposit smaller amounts of funds (the law does not specify the exact amount, but it is said in the MT business community of JPY 50,000 per transaction.) As the amount managed by registered operators type 3 is relatively small, the application process is more flexible than other types of MT licenses.

Please note that the requirement to know your customer is imposed on MT licensees under a separate law, the Prevention of Transfer of Proceeds of Crime Act. There are no plans to change the law in accordance with the change in law. So, all 3 types of MT licensees above are all subject to KYC requirements under the law.

3. Restrictions on pooling funds prior to disbursement

Under current law, some attorneys report that while the maximum payout amount is one million yen per transaction, customers can send and hold over one million yen with registered MT operators for up to any future payout transactions. Based on this point of view, some MV operators provide a quasi-wallet service to customers. However, some criticize that a registered MT operator processes considerably more than the transfer amount allowed. In response to this criticism, the government changed the law to restrict TM operators from the funds they receive from customers and keep. The amended law provides that an authorized type 1 operator is only allowed to receive the exact amount that the customer is actually required to pay. In addition, the amended law provides that a type 3 registered operator cannot receive more than the specified amount (the next amended cabinet decree will specify this amount). In addition, the amended law requires all types of MT licensees to establish a measure to return funds to customers if an MT licensee comes to recognize that funds will not be used for money transfer transactions. .

Therefore, according to this amendment, MV operators cannot receive and hold customer funds for purposes other than money transfer; thus, MV operators may not provide so-called wallet services to customers. However, along with other licenses, such as registering prepaid instrument services under the law and registering e-settlement agency services (aka payment initiation provider services) and the law banking, it is still possible to get the wallet services to some extent.

4. Liberalization of security deposit in transit

Currently registered MT operators must deposit certain security funds in transit with the government depository office or enter into a bank guarantee instead of the deposit to ensure the loss of funds during the remittance period between receipt of funds by an MT operator. and delivery of funds to the recipient. However, depositing the bond in transit with the depository is a tedious process, as is the withdrawal from the depository. The bank guarantee could be flexible in setting and increasing the amount of the guarantee simply by amending the guarantee contract, as opposed to depositing with the depository office which requires the filing of certain documents to increase the deposit amount , but which is expensive according to the guarantor banks. The amended law liberalizes security deposit measures and adds a trust agreement as an alternative method of security payment in transit, allowing the simultaneous use of three measures. Thus, an MT operator will be able to deposit a basic transit amount in the depository office and enter into a bank guarantee or trust agreement for a floating transit amount. This will save some costs, as the bank guarantee does not cover the entire amount.

A type 3 operator can deposit the collateral amount in transit into their bank account instead of the deposit office. The bank account should be separated from the bank account for the exclusive use of a type 3 operator, and the bank account should be regularly audited by a certified public accountant.

5. Date of entry into force of the amended law and detailed regulations

The date of entry into force of the amended law has not yet been determined but will be determined by the government within one year of June 12, 2020. The law only sets the legal framework; detailed regulations will be set out in the next ministerial decree. In the usual legislative cycle in Japan, the cabinet order on the amended law will be issued in the last quarter of this year.

6. Endnotes

This GT Alert provides a general overview of changes to the law relating to money transfer activities in Japan. It is not intended as a comprehensive analysis of all the regulatory provisions that may apply to money transfer businesses. Further, this GT Alert is not intended to provide any overview or advice regarding the regulation of money transfer companies under any other applicable laws and regulations, including laws or regulations outside of Japan.

* This GT Alert is limited to non-US matters and laws.

© 2021 Greenberg Traurig, LLP. All rights reserved. Revue nationale de droit, volume X, number 196

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