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Economy

Japan to raze barriers in financial-sector overhaul

Regulation by service type, not industry, would serve as guiding principle

Fintech and conventional finance would be put under equal footing under the new regulatory regime.   © Reuters

TOKYO -- The walls between banks and nonfinancial companies would come tumbling down under planned Japanese rule changes designed to put different providers on an equal footing.

An interim proposal that would regulate by type of service, rather than the industry that an operator belongs to, won approval on Monday from a Financial Services Agency council. The hope is that the overhaul will enable enterprises to change business models freely, subject to appropriate oversight.

Remittance services offered by banks and financial technology companies, for example, would live under the same regime. The general concept would be to regulate services with the same functions at the same risk levels the same way.

As things stand, banks need minimum capital of 2 billion yen ($18 million) to offer remittance services, while companies in the category of fund transfer service operators have no such specific requirements. Banks must obtain licenses to operate, while the latter merely have to register.

A business that registers for lending, transferring funds and trading certain types of financial instruments separately can operate like a bank under the current rules, without being subject to the strict regulations governing banks.

By equalizing requirements for specific services across the board, the agency seeks to close existing loopholes and promote fairer competition. It also seeks to facilitate market entry by companies exploring different areas of business.

As the line between financial and nonfinancial companies increasingly blurs, how far to expand the allowed scope of operations for banks is a key question. A digital currency issued by Mitsubishi UFJ Financial Group could expand the group's presence to a wide array of offerings, such as car services booked via mobile app. But current rules do not let banks in Japan operate e-commerce services, even though American e-tailer Amazon.com can enter banking here.

But defining different types of services and setting rules for each is no easy task. An FSA official even likens the challenge to the difficulty of completing the famed Sagrada Familia church in Barcelona.

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