Tokyo FinTech
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Tokyo FinTech

A slow start for Japan’s Financial Service Intermediary License

Japan’s revised “Act on Provision of Financial Services” came into effect in November 2021, and with it a new, cross-sector Financial Service Intermediary Business license was introduced. This license was supposed to make it possible to offer simple financial products and services across banking, securities, insurance and money lending businesses with a single registration.

There are three important implications for the FinTech world that came with this regulatory change, which are detailed further below:

  • Single licensing regime
  • Fundamental change in agency
  • Ability to initiate money transmissions under same license

Alas, eight months into the regime, there are just three companies that have received the new license:

  • 400F (Four Hundred Franc)
  • SBI Neo Mobile
  • SCSK ServiceWare

400F and SBI Neo Mobile obtained the license right off the start of the new framework, on November 1, 2021, and SCSK ServiceWare followed on March 29, 2022.

One could surmise that while the new license is off to a slow start, there are a number of companies that are preparing to obtain it. The Japan Financial Service Intermediary Business Association (JFIM) has been established as a quasi self-regulatory body, operating along similar lines as the JVCEA in that it includes Type I members that have already been licensed, namely the above-mentioned three entities, and Type II members, which are supposedly in the process of obtaining the license. However, there are not any Type II members listed.

What could be the reasons for such a slow start?

First, there is possibly little demand as of yet. While in theory such a cross-sector approach seems reasonable, in practice, the skills required to intermediate banking products next to insurance products are quite different, and thus it is difficult to staff and build customer credibility for such an operation. Also, existing customers will have existing relationships in the respective sectors and might be loathe to switch. This is fundamentally different from insurance brokers that operate independent of an insurance company, such as “Hoken no Madoguchi”, that have been very successful at a different level of intermediation.

Second, in line with the FSA standards established in recent years, the Financial Service Intermediary License is principles- rather than rules-based. This implies that one cannot simply take the inspection handbook and aim to check off all the items, the policies and procedures have to be developed tailored to the individual entity, within said framework of principles. As this approach is still relatively new, it might seem alien and more difficult to implement.

Third, the Financial Service Intermediary Licenses imposes some restrictions on the business that are more limiting than having a brokerage license in a specific sector. For example, the value of life insurance policies that can be intermediated is relatively low. This seems to be a compromise in the implementation of the Financial Service Intermediary Law that is intended to protect existing sector-specific businesses, but obviously works against the acceptance of the new regime.

In the following, we highlight the key points of the Financial Service Intermediary License as laid out in our article from last year:

Single Licensing Regime

Mobile applications that recommend different financial products based on user data are considered intermediaries in Japan. Until now, such intermediaries are required to be licensed or registered separately under vertically segmented regulation, such as the Banking Act, the Financial Instruments and Exchange Act, and the Insurance Business Act.

The revision of the act consolidates this license requirement, but puts limitations on the complexity of products that can be intermediated this way. Generally, this is to be understood to be relatively simple products such as savings accounts, fixed-term deposits, stock transactions, etc. Products that require “advanced explanations” are excluded.

Agency

Under the current licensing regime, the role of the intermediary is fully aligned with a single financial institution, and operates under that financial institution’s supervision. Therefore, the intermediary can be viewed as an agent of the seller, not the buyer.

The revision of the act removes this “belonging” and allows Financial Service Intermediaries to offer products from multiple financial institutions. Thus, the agency of the intermediary moves towards representing the interests of the buyer, not the seller.

Money Transmissions

When certain conditions are met, Financial Service Intermediaries will be allowed to initiate money transmissions on behalf of their users. Such an arrangement will require a notification to the Financial Services Agency (FSA), but not another license such as the electronic money transmission license. However, Financial Service Intermediaries will not be allowed to hold customer balances.

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Norbert Gehrke

Norbert Gehrke

Passionate about strategy & innovation across Asia. At home in Japan. Connector of people & ideas.