Key Points from the FSA meeting with Major Banks (May 2024)

The Financial Services Agency (FSA) regularly meets with industry groups. Actually, it meets with the three mega banks monthly, and the other meetings in any specific month rotate. In May, the FSA also met with the Regional Bank Association & Second Regional Bank Association, with the National Association of Shinkin Banks, and with the National Association of Credit Unions. From any meeting, the FSA publishes the key points it raised from its side. The meeting with the mega banks took place on May 14.

Regarding the Publication of Minutes from the “Exchange of Opinions between Disability Organizations and Financial Institution Related Organizations”

• On March 8th, the Financial Services Agency (FSA) held an “Exchange of Opinions between Disability Organizations and Financial Institution Related Organizations”. Various disability organizations raised issues and requests, such as “being denied the assistance of a companion other than family members for account opening procedures, therefore requesting improvements and stricter adherence to internal regulations regarding assistance,” and “requesting signage at front desks providing face-to-face services indicating the availability of assistance with writing and reading.”
• The minutes of the exchange of opinions were published on the FSA website on April 19th. We kindly request that you refer to this information and further strengthen your efforts towards inclusivity for people with disabilities.
• The FSA has been conducting a survey on initiatives related to inclusivity for people with disabilities annually, and we plan to release the results after completion.

Regarding Responses to the Shortening of Bill Cycles and Other Issues

• Following the announcement by the Fair Trade Commission on April 30th regarding “Changes to Guidelines for Guiding Bill Payments as a Means of Subcontracting Payment,” the Fair Trade Commission and the Small and Medium Enterprise Agency have requested dissemination of information regarding responses to the shortening of bill cycles.
• In light of this, the FSA has issued a request to each financial institution to carefully and sincerely respond to inquiries from businesses regarding funding support for efforts to shorten bill cycles, and to strive for flexible and comprehensive funding support tailored to individual businesses, considering their business conditions and financing needs. Please ensure this request is communicated thoroughly.
• Regarding the handling of bills and checks, the “Voluntary Action Plan for the Full-Scale Digitization of Bill and Check Functions” sets a final goal of “zero bill and check exchanges at electronic exchanges by the end of fiscal year 2026,” and the government and private sector are working together to advance these efforts. We kindly request continued efforts to promote the initiatives of each financial institution.

Regarding Foreign Currency Liquidity Monitoring

• Regarding foreign currency liquidity risks, joint surveys were conducted with the Bank of Japan for the third consecutive year in fiscal year 2023, focusing on the three mega-banks.
• Through the efforts of each bank and the support provided by joint surveys, the stress tolerance of the three mega-banks towards foreign currency liquidity risks has been steadily enhanced compared to the past. However, challenges remain in further enhancing risk management.
• Furthermore, based on these joint surveys, a report outlining the progress made in enhancing foreign currency liquidity risk management at major banks, including mega-banks, and future challenges, is scheduled to be released jointly by the Bank of Japan and the FSA in the near future.
• Stable foreign currency liquidity is a crucial challenge for major banks, including mega-banks. We kindly request that you continue to work towards strengthening risk management, referring to this report as well.

Regarding the Publication of “Climate-Related Scenario Analysis — Future Initiatives for the Banking Sector”

• Following the first exercise of climate-related scenario analysis conducted in fiscal year 2021, the FSA and the Bank of Japan plan to conduct the second exercise in fiscal year 2024, targeting the three mega-banks. The framework for this exercise was published on May 10th.
• The second exercise aims to analyze the transition risk through short-term scenarios. These scenarios assume situations where stronger stresses are applied in the short term due to policy changes, technological constraints, etc., and are intended to complement the analysis conducted in the first exercise based on long-term scenarios. In addition, we are considering a pilot study to explore whether it is possible to demonstrate the impact of transition finance by banks in supporting corporate transitions.
• Details of the implementation will continue to be discussed through practical discussions between the three mega-banks and the FSA/Bank of Japan. We kindly request your cooperation towards the implementation of the second exercise.
• This publication also introduces a simplified analysis of the impact of climate-related risks on the market risk affecting bank finances through the decline in the value of held securities, conducted in fiscal year 2023.

Regarding Immediate Actions for Anti-Money Laundering and Other Countermeasures

• Regarding “Establishing a System Based on the Anti-Money Laundering Guidelines,” the deadline was March 31, 2024, and reports on the results of implementation were submitted at the end of April. We express our gratitude for your efforts to advance this process under the leadership of top management.
• The FSA will continue to monitor the status of system development at each financial institution through monitoring based on these reports in the near future.
• We reiterate that, based on the results of such monitoring, individual administrative responses may be considered as necessary, as previously stated.
• Looking ahead to the Fifth Mutual Evaluation of Japan by the Financial Action Task Force on Money Laundering (FATF) scheduled for 2028, each financial institution must properly operate the anti-money laundering and other risk management system that has been developed, verify its effectiveness, and continuously maintain and enhance the system.
• The FSA will also share examples of initiatives undertaken by financial institutions that have proactively responded to the verification of effectiveness, and explore the possibility of compiling certain perspectives and considerations that could serve as references for each financial institution.

Regarding the “Action Plan on Anti-Money Laundering, Terrorist Financing, and Proliferation Financing (FY2024–2026)”

• On April 17th, the government’s new action plan on anti-money laundering and other countermeasures was formulated and published on the Ministry of Finance website.
• This new action plan summarizes the initiatives to be implemented by the government and financial institutions, etc., over the next three years. It is essential for the financial industry to steadily enhance and advance anti-money laundering and other countermeasures based on a risk-based approach, working together with the government.
• While previous plans focused mainly on establishing basic systems within set deadlines, the focus now is on enhancing the effectiveness of these systems and addressing evolving risk environments, including sophisticated financial crimes, to meet international standards.
• The FSA will also respond to the strengthening of anti-money laundering and other countermeasures within the financial industry in Japan by ensuring the stable operation of joint systems, etc.
• We kindly request that, under the continued leadership of top management at each bank, you steadily advance initiatives to further enhance the effectiveness of the system that has been developed thus far.

Regarding the Japan Financial and Economic Education Promotion Organization (J-FLEC)

• Regarding the Japan Financial and Economic Education Promotion Organization (J-FLEC), established on April 5th, its official website was launched at the end of April, announcing its future operational policies, etc. The FSA and J-FLEC are preparing for full-scale operation in August, aiming to promote financial and economic education from a neutral standpoint for the entire country, working together with the public and private sectors.
• To enhance the recognition of J-FLEC and disseminate its business activities, promotional flyers and leaflets have been created and published on the J-FLEC website. These materials clearly explain the outline and business activities of J-FLEC, so we encourage you to share them within each financial institution. In particular, we kindly request the cooperation of member banks in disseminating information about J-FLEC to client companies in order to encourage their utilization when providing financial and economic education to employees. We hope that you will actively utilize these promotional materials to publicize J-FLEC’s activities to client companies.

Regarding Japan Weeks 2024

• A dedicated website for “Japan Weeks,” to be held from late September to early October as part of efforts to realize an international financial center and an asset management nation, has been launched.
• This website will be updated in the future, so we encourage each financial institution to pay attention to it. Additionally, those planning to hold events during Japan Weeks are requested to provide information to the General Policy Division as needed.

Regarding the IMF Financial Sector Assessment Program (FSAP)

• A review of Japan under the IMF Financial Sector Assessment Program (FSAP) was conducted from April 2023 to May 2024, and the IMF report was published on May 14th.
• The IMF assesses the stability of the financial sectors of its member countries through the FSAP, and major countries, including Japan, undergo this review once every five years (the previous review of Japan was conducted in 2017). This program provides a comprehensive and in-depth assessment of systemic risk, financial regulation and supervision frameworks, etc.
• The IMF report highly praises the current state of Japan’s financial system, stating that it is resilient to recent shocks and that the financial regulatory and supervisory framework has significantly progressed since the previous assessment in 2017.
• On the other hand, certain vulnerabilities have been pointed out based on systemic risk analysis, etc., and recommendations for further improvements to Japan’s financial regulation and supervision have been made.
• Each financial institution has cooperated in this review by providing data and participating in interviews. The FSA will continue to work to ensure the resilience of the financial system while referencing the IMF’s recommendations.

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