Shimane Bank in March withdrew from all foreign exchange operations,including overseas remittance and collection of export bills. SHIMIZU CORPORATION
Japanese financial institutions’ foreign exchange operations have fallen into a predicament. Not only do they have to implement measures against money laundering, they are also facing the risk of being subjected to huge fines from authorities if they are found to have been involved in such illicit practices.
Amid such circumstances, some regional banks have ceased foreign exchange services while major banks are raising remittance fees.
And financial technology (fintech) companies are aiming at taking advantage of the situation to lure customers. But some observers say that foreign exchange services by fintech firms would become a hotbed of money laundering due to factors such as lax identification.
Increasing burdens
In March, Shimane Bank withdrew from all foreign exchange operations, including overseas remittance and collection of export bills.
Kirayaka Bank, headquartered in Yamagata, stopped accepting corporate and individual overseas remittances by the end of March, while Higashi-Nippon Bank had exited from the foreign exchange business at 90 per cent of about 80 branches by the end of August.
Behind such moves is the increasing demand globally to strengthen measures against money laundering to prevent funds from flowing into terrorist organisations. When customers request to send money overseas, banks have to check against a list of antisocial forces and pick up unusual moves such as sudden withdrawals of large sums of cash.
That puts a financial burden on banks. Coming up with a computer system to execute such tasks is expected to cost more than 100 million yen ($920,000) in initial expenditures and tens of millions of yen a year to run the system.
Big fines loom
In addition, if a bank transfers money overseas without being aware there is money laundering involved, financial authorities may impose large fines on it.
“Foreign exchange operations are time-consuming and costly, and the risks involved are very high,” a regional bank official said. “If possible, we would like to withdraw [from foreign exchange services]. That’s our real feeling.”
Even big banks are affected by the burden of foreign exchange operations.
MUFG Bank has raised its fees for overseas remittances via over-the-counter account transfers from a minimum 4,000 yen to 7,000 yen. Sumitomo Mitsui Banking Corp and Mizuho Bank will raise their fees in December and January.
If such moves to withdraw from the service or raise fees on it spread, they could hinder Japanese companies from expanding overseas. This will have a particularly large impact on local companies.
“Strengthening relations with overseas countries is essential for regional revitalisation,” said a transport company senior official in Hokkaido. “It is feared that the curtailment of banks’ foreign exchange operations will affect regional economic activities in the future.”
Emerging firms see chance
Meanwhile, emerging fintech companies are jumping into the foreign exchange business. They see the withdrawal or reduction of foreign exchange services by existing financial institutions as a business opportunity.
Britain-based TransferWise, which launched its service in Japan in 2016, aims to attract customers by limiting the handling fee to about 1,000 yen for overseas remittances of 100,000 yen from Japan.
However, some fintech companies are said to be lax in checking the identities of clients and recipients. “Financial institutions that lack sufficient anti-money laundering measures, including fintech companies, may be forced to drastically review their foreign exchange operations,” a Financial Services Agency official said.
THE YOMIURI SHIMBUN (JAPAN)
