You can see the rules and regulations in other jurisdictions.
Securities and derivatives transactions are governed by the Financial Instruments and Exchange Act (FIEA).1
Under the FIEA, operators need to register as investment management services providers to take care of assets by carrying out discretionary investment arrangements with investors who entrust them with the authority to make investment decisions. Operators in this business shoulder a fiduciary duty and loyalty towards their investors, and are subject to rules concerning conduct, such as an in-principle ban on engaging in conflict-of-interest transactions, and banning compensation for investor losses.1
The provision of investment advice and agency services requires registration for businesses to provide advice on investment decisions without being entrusted with the power to make the actual investment decisions.1
In addition, business operators entrusted by Type I financial instruments business operators or investment management services operators to act as intermediaries or the like to trade in securities or market derivatives transactions are required to become financial instruments brokers.1
In November 2021, the Financial Services Intermediary Act was passed, superseding the Financial Instruments Sales Act. This allowed for financial services intermediary businesses to be created under a single registration in the fields of banking, securities and insurance, as opposed to the current system of individual registration for agents and brokers. If certain criteria are met, then there is no need to register electronically for settlement agency services. However, this licence only permits services that do not involve complex explanation (i.e., any attempt to broker unlisted stocks and derivatives will be prohibited). To guarantee redress for customers affected by any damage inflicted during service provision, the business must make a deposit beforehand. In addition, other regulations will be put in place depending on the nature of the financial service itself.1
Fintech companies, as well as financial-related businesses, are not prohibited from owning shares or equity. In accordance with the Foreign Exchange and Foreign Trade Act, foreign companies are required to submit a report to the authorities if they acquire shares or equity in financial-related businesses, including fintech companies.1
The FSA's guidelines make it clear that purely distributing or selling investment analysis software which employs algorithms is not deemed a controlled activity. Although, depending on the details of any additional data or help given by distributors or any other relevant parties, this could be considered as providing either advice or management in investments. Given how intricate the determination of whether a platform using algorithms is subject to such regulation can be, each situation needs to be assessed individually. Moreover, when an algorithm-based system suggests particular financial products to customers, the platform may need to register as a Type I/II financial instruments business.1
In addition to raising other issues such as the allocation of responsibilities among relevant parties and the prohibition of market manipulation, the use of algorithms or artificial intelligence in a service may also trigger certain regulations related to insider trading or non-public information that is not public.1
Third-party websites or platforms that compare or offer information concerning financial products must comply with general consumer protection rules, which forbid misleading data. It's also imperative that they be familiar with the FSA's instructions. According to them, taking active steps like providing processed data instead of raw material that financial institutions supply, utilising particular formats or algorithms that feature specific financial products and the like, could constitute 'solicitation' of goods - needing a sales licence or marketing layer licence similar to those applicable to financial services agents.1
