Japan seeks to amend regulatory laws to promote large-scale innovation in Internet finance

Rage Comment : The collapse of Japan's MT.GOX and the significant financial losses have led to the domestic financial policies in Japan restricting the development of emerging technologies such as blockchain technology. As a result, many Japanese investors have turned to foreign countries to explore financing channels, and blockchain technology startups have also moved overseas. Several major global investors have even chosen the Israeli market instead of Japan. Yano Research Institute believes that through the continuous efforts of enterprises and the government, Japan is likely to become one of the first countries to manage Bitcoin through the state. Japan's activities in this field have attracted global attention.

Translation: Nicole

Tight regulations hamper financial reforms in Japan, the world's third-largest economy

Due to the backwardness of 'Internet finance' or financial technology reform, Japan began to relax investment restrictions, thereby opening up the flow of funds of nearly 9 trillion in personal cash deposits.

Strict management regulations make people more inclined to use credit cards with the lowest interest rates, while risk-averse groups have little need for innovative financial services and prefer to use cash rather than credit cards, thus hindering the development of Internet finance in Japan.

Internet finance joint ventures, which typically start-ups offer loans, insurance and payment services on smartphones using cloud data storage, raised $2.7 billion in China last year and more than $1.5 billion in India, according to CB Insights. U.S. joint ventures attracted about $7.4 billion in investment.

By comparison, Japanese joint ventures invested just $44 million in the first nine months of 2015.

Now, Japan's financial regulators hope to relax investment rules for financial joint ventures and usher in a new system of regulating virtual currency exchanges that was passed by parliament in May, the first step in the world's third-largest economy to begin internet finance reforms.

Norio Sato, a senior FSA official, told Reuters:

"This legal change is not a goal, but a first step. Internet finance will have a great impact on financial services."

The change, which lets banks buy up to 100 percent of shares in non-finance-related companies, would open up Japan’s three largest banks to internet finance joint ventures to develop services including automated investment advice and blockchain, the decentralized ledger technology underlying the bitcoin digital currency.

Mitsubishi UFJ Financial Group, Mizuho Financial Group and Sumitomo Mitsui Banking Group said they are eyeing such investments, having previously limited startups to holding stakes of 5% to 15%.

Under pressure from low loan demand, leading banks have discovered opportunities to make money through Internet finance, but have also noted that it may disrupt traditional business models.

Japan has no promising Internet environment. In 2014, the famous Bitcoin exchange Mt. Gox was devastated by the theft of nearly $650 million in digital currency, forcing some entrepreneurs to seek financing overseas.

Junichi Horiguchi, co-founder and bitcoin services provider Zerobillbank Ltd, founded his startup in Tel Aviv last year to take advantage of Israel's advanced technology industry.

He said investments by global banks in fintech startups, including tech giants Barclays, Google and Facebook, were more common in Israel than in Japan.

Horiguchi Jun'ichi

Junichi Horiguchi told Reuters:

“There are open innovation competitions and startup accelerator programs every month.”

The Yano Research Institute said in a report that sales of Japanese Internet finance startups could exceed $500 million by 2020, with the money spent on research into growth technologies such as blockchain.

The FSA's new rules are intended to promote virtual currency exchanges and could make Japan one of the first countries to regulate bitcoin through the state.

Sato said:

"Japan was not enthusiastic about fintech before, but creating these rules so quickly has attracted the world's attention."

Yuzo Kano, founder and CEO of bitcoin exchange bitFlyer and Japan's leading digital asset lobbying group, said bitcoin entrepreneurs, who often rely on investment to grow, need clarity on regulation and to keep up with changes.

Yuzo Kano

Kano commented on FAS’s rapid drafting of the law:

“The creation of the law was amazing and it was very successful.”