The Financial Services Agency is the principal regulatory body responsible for the stability of Japan’s financial system.
Originally created in 1998 as an administrative wing of the Prime Minister’s Office, Japan’s Financial Services Agency (FSA) was established as a regulatory body in 2000 by the Financial Reconstruction Commission (FRC). Previously responsible only for the supervision of private-sector financial institutions, after reorganization by the FRC, the FSA became Japan’s primary financial regulator and is now responsible for the stability of the wider financial system and the protection of its participants – a mandate which includes a duty to combat money laundering and the financing of terrorism.
The FSA is headquartered in Tokyo and is led by its Commissioner – currently Endō Toshihide – who reports directly to a ministerial team and the Japanese Minister of State for Financial Services. The FSA maintains local and regional offices in numerous locations around Japan.
What Does the FSA Do?
As a financial regulator, the FSA has authority over Japan’s banks, insurance companies, trust companies and other obligated financial institutions. It protects and maintains the stability of Japan’s financial system by overseeing the inspection and supervision of those institutions to ensure their compliance with Japanese and international law. The FSA also plays a role in developing new financial legislation in coordination with the Japanese government. More specifically, the roles and responsibilities of the FSA involve:
- Planning legislation and policymaking for Japan’s financial sector.
- Inspecting and supervising financial institutions, public accountants, and auditing firms for ongoing compliance with AML/CFT rules and financial legislation.
- Establishing minimum standards for business accounting and corporate finance, and rules for securities trading.
- Participating in the international AML/CFT effort alongside international organizations to advance global regulatory consistency.
The FSA is structured to address the contemporary challenges of financial markets and respond effectively to threats. The regulatory duties of the FSA are split across three bureaus:
- Strategy Development and Management Bureau: Responsible for devising policy strategy, conducting administrative duties and inspecting financial institutions.
- Policy and Markets Bureau: Responsible for improving the FSA’s market policy and for establishing a comprehensive legal framework to manage the emergence of fintech.
- Supervision Bureau: Responsible for the ongoing oversight of financial institutions on a day-to-day basis.
When firms are in violation of FSA rules, the regulator has the power to impose punishments including the limitation of operations, financial penalties and even prison terms for individuals responsible for wrongdoing.
FSA AML/CFT Approach
A regional and international leader in the counter financing of terrorism and anti-money laundering, Japan is a member of the global Financial Action Task Force (FATF). Following FATF policy, the FSA works to ensure Japan’s financial institutions adhere to the AML/CFT policies and practices set out in the 40 Recommendations. Accordingly, to comply with FSA regulations, financial institutions in Japan must implement a risk-based approach to AML/CFT, implementing screening mechanisms for international sanctions, adverse media and politically exposed persons (PEP). Firms must also appoint a Compliance Officer to oversee and manage their internal AML compliance programs. 2019 marks the Fourth Round of Joint FATF Mutual Evaluations of Japan, the results of which are due to be discussed during a plenary session scheduled for June 2020.
The FSA takes a traditionally forward-thinking approach to the money laundering and terrorism financing threats facing Japan. Recent FSA focus has fallen on cryptocurrency and cryptocurrency exchanges: the regulator has introduced exchange licensing requirements and, following high-profile cryptocurrency thefts in 2018, ordered two exchanges to shut down while it adjusted relevant legislation.
In order to help firms stay up to date with legislation concerning CFT and AML, FSA Supervision and Inspection Guidelines are available online for every type of financial institution. The FSA also publishes a Weekly Review to publicize the various legislative actions it has taken.