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Fintech Market Overview

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Artificial intelligence in financial products

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Japan currently employs a "soft law" approach to AI governance, promoting voluntary compliance through guidelines rather than legal mandates. The Ministry of Economy, Trade and Industry (METI) released non-binding guidelines in January 2022 to encourage good practices among AI developers. Additionally, Japan issued the Hiroshima Principles to promote safe and trustworthy AI globally.1

However, a working group from the Liberal Democratic Party is proposing a "hard law" approach called "the Basic Act on the Advancement of Responsible AI." This proposed law would regulate certain generative AI models, mandating government oversight, periodic reporting, and compliance obligations for developers. The new law would represent a significant shift from Japan's current regulatory strategy to a more enforceable legal framework.2

Japan has no specific laws regulating AI development, use, or provision. However, the proposed "Basic Act on the Advancement of Responsible AI" may establish a foundational legal framework for AI systems and applications.2

Several existing laws, although not specifically designed for AI, impact its development and use in Japan. The Digital Platform Transparency Act ensures transparency and fairness in transactions for large online malls, app stores, and digital advertising businesses. The Financial Instruments and Exchange Act requires businesses involved in algorithmic high-speed trading to register with the government, implement risk management systems, and maintain transaction records.2

The Civil Code allows tort claims against individuals instructing AI to produce and publish defamatory content. The Copyright Act and the Act on the Protection of Personal Information are applicable to inappropriate uses of AI. Additionally, the Criminal Code can address various AI-related offenses, such as defamation, business obstruction through AI-generated fake content, and unauthorized commands to another's computer. These laws collectively influence AI practices in Japan, even in the absence of specific AI regulations.2

There is no legally recognized definition of "AI" in Japan. The Draft AI Guidelines for Business, published by METI and the Ministry of Internal Affairs and Communications, acknowledge the absence of an established definition for AI and highlight the difficulty in strictly defining its scope. However, for the purpose of the Draft AI Guidelines for Business, METI considers AI to be an abstract concept that encompasses AI systems themselves, as well as machine learning software and programs.3

As mentioned earlier, Japan currently lacks specific laws or regulations that directly oversee the development, usage, or distribution of AI. Furthermore, AI or AI systems are not typically categorized by risk in Japan's existing guidelines and principles. Nonetheless, there have been reports indicating that certain government officials see the adoption of a risk-based approach as essential.4

Currently, Japan lacks specific laws or regulations that directly oversee the development, use, or provision of AI. Despite this, the METI Guidelines outline principles that Japan is moving towards adopting. These principles emphasize various aspects:

Firstly, AI applications should operate with a human-centric approach, ensuring they do not infringe upon fundamental human rights protected by both national and international standards. This principle underscores the importance of ethical considerations in AI development and deployment.5

Secondly, policymakers and business leaders involved in AI must possess a comprehensive understanding of AI technology, coupled with suitable knowledge and ethical frameworks. This ensures that AI is utilized responsibly and effectively within society, addressing potential risks and maximizing benefits.5

Thirdly, the protection of privacy remains a critical concern. Stakeholders are encouraged to handle personal data with discretion, reflecting its sensitivity and importance. This principle aligns with broader efforts to safeguard individual rights in an increasingly digital and interconnected world.5

Furthermore, Japan seeks to strike a balance between leveraging AI's potential benefits and managing associated risks. This includes enhancing societal safety and sustainability, which are key considerations in advancing AI applications.5

Additionally, fostering fair competition in the global AI landscape is essential. Ensuring a level playing field among countries and stakeholders encourages innovation while preventing monopolistic practices that could stifle technological progress.5

Moreover, transparency, accountability, and fairness are pivotal in an "AI-Ready Society." Decision-making processes should be transparent, accountable, and free from biases to maintain trust in AI technologies and mitigate potential discrimination.5

Lastly, promoting collaboration across academia, research institutions, and industry fosters innovation in AI. Governments play a crucial role in facilitating regulatory reforms that support a conducive environment for AI research and development, ultimately contributing to a more efficient and beneficial society.5

These principles collectively aim to guide Japan towards a responsible and sustainable integration of AI technologies into society, addressing ethical concerns and maximizing societal benefits.5

Several ministries and agencies, including the Ministry of Economy, Trade and Industry, the Ministry of Internal Affairs and Communications, the Agency for Cultural Affairs (especially regarding copyright), and the Personal Information Commission, play significant roles in developing and promoting AI guidelines. While these guidelines are not legally binding, they are influential and widely followed by both businesses and the public in Japan.2

Data protection in Japan

Fintech in Japan

Fintech in other countries

Notes
  1. https://www.mofa.go.jp/files/100573473.pdf
  2. https://www.whitecase.com/insight-our-thinking/ai-watch-global-regulatory-tracker-japan
  3. https://www.meti.go.jp/shingikai/mono_info_service/ai_shakai_jisso/pdf/20240119_4.pdf
  4. https://www.asahi.com/ajw/articles/14897697
  5. https://www.meti.go.jp/shingikai/mono_info_service/ai_shakai_jisso/pdf/20210709_8.pdf
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