Foreign Bank Agency Service will expand range of businesses that foreign banks may conduct in Japan | Practical Law

Foreign Bank Agency Service will expand range of businesses that foreign banks may conduct in Japan | Practical Law

Foreign Bank Agency Service will expand range of businesses that foreign banks may conduct in Japan

Foreign Bank Agency Service will expand range of businesses that foreign banks may conduct in Japan

by Atsumi & Partners
Published on 08 May 2009 • Japan
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Amendments to the Banking Act have removed uncertainties faced by foreign banks with regard to operating branches and conducting business in Japan. These amendments have created new opportunities for foreign banks to expand their businesses in Japan.
Until recently, foreign banks in Japan faced uncertainty as to whether:
  • The Japanese branch of a foreign bank was able to operate its global custody business in Japan as an agent of the foreign bank.
  • A foreign bank that did not have a branch in Japan could lend money to Japanese residents without registering under the Money Lending Control Act (Article 3, Money Lending Control Act (Law No 32 of 1983)).
The uncertainty in relation to the first point was caused by the fact that the business that a Japanese branch of a foreign bank can conduct is limited to the businesses specified in the Banking Act (Article 10, Banking Act (Law No 59 of 1981)). However, there was no clear provision relating to acting as an agent in respect of the foreign bank's global custody business.
In relation to the second point, it was unclear whether the prohibition against engaging in money lending business without a money lending licence applied to prevent a foreign bank without a Japanese branch from engaging in money lending business in Japan.
However, on 12 December 2008, these uncertainties were removed by amendments to the Banking Act which allow foreign banks to use either their own Japanese branch or another Japanese bank to conduct banking business in Japan (referred to as a Foreign Bank Agency Service). As amended, the Banking Act provides, among other things, that:
  • If the Japanese branch of a foreign bank obtains the approval of the Prime Minister, it can act as an agent of the foreign bank and conduct its global custody business.
  • A foreign bank that does not have a branch in Japan cannot conduct money lending business in Japan unless it obtains a money lending business licence. However, the foreign bank does not need such a licence if it appoints a bank (whether Japanese or not) as its agent that has been approved as a Foreign Bank Agency.
These amendments create new opportunities for foreign banks to expand their businesses in Japan.