Administrative Action Case for a Funds Transfer Service Provider (September 2, 2022)
投稿日：2024年4月5日
This article is the English translation of a post published in Japanese on March 3, 2023.
Funds transfer service providers may be subject to administrative actions by the relevant Financial Bureau. Below are recent administrative action cases against funds transfer service providers.
On September 2, 2022, the Kanto Financial Bureau issued a business improvement order to a funds transfer service provider based on the provisions of Article 55 of the Payment Services Act. The contents of the business improvement order are as follows:
Contents of the Business Improvement Order
(1) To take necessary measures for the operation of the business regarding the following items to ensure proper and reliable execution of funds transfer business:
- Establishment of management control systems (including the establishment of internal control systems and internal audit systems).
- Establishment of compliance systems.
- Establishment of external contractor management systems.
- Establishment of money laundering and terrorist financing risk management systems.
(2) To submit a business improvement plan (including specific measures and implementation timing) by October 3, 2022, and to commence its implementation immediately after submission.
(3) After the implementation of the above (2), to report the progress and implementation status every three months until the completion of the business improvement plan, with the first submission due by the end of October 2022.
What were the reasons for the administrative action?
Details of the Administrative Action
According to the Kanto Financial Bureau, the results of an on-site inspection by the Financial Services Agency identified significant issues in the management control systems, external contractor management systems, and money laundering/terrorist financing risk management systems as follows:
(1) Management Control Systems
The board of directors did not function properly due to insufficient involvement from the management team, and the internal control and internal audit systems were not adequately established. This led to insufficient system establishment necessary for the proper and reliable execution of the funds transfer business, resulting in the identified deficiencies in the systems described in (2) and (3).
(2) External Contractor Management Systems
The company outsourced most of its major operations, such as transaction confirmation processes, to its parent company and others. However, the oversight of re-outsourcing and further outsourcing was inadequate, and there was no verification that the contractors were performing the tasks properly and reliably. It became clear that the necessary measures to ensure proper and reliable performance of outsourced tasks as prescribed in Article 50 had not been taken.
(3) Money Laundering/Terrorist Financing Risk Management Systems
The company did not sufficiently establish appropriate money laundering and terrorist financing risk management systems in line with its business expansion, leading to violations of the Act on Prevention of Transfer of Criminal Proceeds. Specifically, violations occurred due to unverified transaction purposes and occupations. Additionally, there were deficiencies in the procedures for making judgments on suspicious transactions and inadequate responses required by the guidelines on money laundering and terrorist financing measures.
What impact does this have on funds transfer service providers and businesses wishing to apply for funds transfer business registration?
My clients and I have actually experienced “External Contractor Management Systems.”
When a business hoping to apply for funds transfer business registration was planning to outsource most of its operations to its parent company, the Kanto Financial Bureau emphasized questions such as “Can your subsidiary truly instruct and supervise the appropriate business operations of the parent company?” and “How do you guarantee that?” I recall a discussion with an official mentioning that there had been a case of a funds transfer service provider that outsourced most of its operations to a parent company and managed its external contractors improperly. Administrative actions not only supervise existing funds transfer service providers but also affect the review process for applications for funds transfer business registration.
Referencing public information about administrative actions can be beneficial for existing funds transfer service providers and businesses wishing to register for the funds transfer business. Please consider this information as a reference.
Reference: Website of the Kanto Financial Bureau
https://lfb.mof.go.jp/kantou/kinyuu/pagekthp0270000010.html