Identity Verification, KYC and AML Compliance in Japan
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Key takeaways
Japan leads in KYC and AML regulations, aligning with the International Financial Action Task Force (FATF) standards to strengthen its regulatory framework and effectively prevent money laundering and terrorism financing.
Japanese companies face significant challenges in identity verification, including the diversity of official documents, ICAO standards, and the need to integrate advanced technologies to combat document fraud.
Key documents for identity verification in Japan include the My Number Card, passport, driver's license, and residence permit, each with advanced security features that require robust document verification systems.
Didit revolutionizes KYC and AML compliance in Japan by offering a free and unlimited tool that uses artificial intelligence for document verification, facial recognition, and AML screening, enabling companies to comply with regulations efficiently and securely.
Japan stands as a benchmark in KYC (Know Your Customer) and AML (Anti-Money Laundering) regulations. These regulations are essential for preventing money laundering and terrorism financing, adapting to a dynamic and ever-changing market like Japan's. Japan's commitment to national and international financial health is evident: Japan has been a member of the Financial Action Task Force (FATF) since 1990, and this organization recognizes its compliance with four of its main recommendations, in addition to significant compliance in 35 other areas, thereby strengthening the local regulatory framework.
The measures adopted by Japan to combat money laundering and terrorism financing have shown positive results, although there are still areas for improvement, as highlighted by various FATF reports. One of the main challenges is strengthening internal processes to achieve greater regulatory effectiveness.
In this context, companies in Japan must face a significant challenge: integrating robust identity verification solutions that can adapt to an ever-evolving environment. Regulation is not limited to the financial sector (banks or neobanks); other sectors such as fintech, digital services, crypto asset companies, and real estate also must comply with strict identity verification and risk prevention mechanisms in Japan.
In the following paragraphs, we will explore Japan's legislative landscape regarding KYC and AML, address the main challenges companies face when verifying their customers' identities, and demonstrate how Didit is transforming the document verification and regulatory compliance landscape in Japan.
The Legal Framework of KYC and AML in Japan: Regulatory Requirements
Japan has developed a comprehensive legal framework that thoroughly addresses the fight against money laundering and terrorism financing. Collaboration with other international bodies is key to this effort. Japan's KYC and AML regulations align with the international standards promoted by the FATF, laying the groundwork for both financial institutions and other obligated sectors to establish due diligence controls that ensure proper identity verification of their clients. The manner in which information is stored and handled is crucial: sensitive data must be securely stored for at least seven years, as mandated by compliance regulations.
The regulatory framework has notably evolved in recent years. Japan's system has been built upon multiple updates to respond to the relentless evolution of fraud and to tighten risk controls.
Act on Prevention of Transfer of Criminal Proceeds (Act No. 22 of 2007)
The Act on Prevention of Transfer of Criminal Proceeds is the fundamental law of the AML framework in Japan. It requires financial institutions, as well as any other obligated industries, to verify their customers' identities as part of anti-money laundering regulations, maintain records of their transactions for at least seven years, and report suspicious activities to the Japan Financial Intelligence Center (JAFIC). The law has been periodically updated to strengthen controls and adapt to new financial threats. One of the most notable amendments was in 2016, which reinforced due diligence and expanded the list of obligated entities.
Act on Punishment of Organized Crimes and Control of Proceeds of Crime
The Act on Punishment of Organized Crimes and Control of Proceeds of Crime broadens the scope of crimes that can fall under money laundering. Additionally, it establishes strict penalties for individuals involved in the concealment of illicit funds. This regulation underscores the need to identify and trace the origin of assets.
Financial Instruments and Exchange Act (FIEA)
The Financial Instruments and Exchange Act (FIEA) regulates Japan's financial markets and sets stringent requirements for transparency and the reporting of financial activities. Within the framework of identity verification and KYC, the FIEA mandates companies to conduct due diligence on their clients.
Financial Services Act
The Financial Services Act complements the FIEA and provides an additional framework for the supervision and regulation of financial institutions. It includes specific provisions on risk management, corporate governance, and the responsibility of companies in implementing effective KYC and AML practices.
Identity Verification in Japan: A Challenge for Companies
Japan's speed and digitalization create new challenges that directly impact identity verification processes. Online account openings for any service, from banking apps to investment platforms, require remote KYC processes that are user-friendly and secure. Meanwhile, Japanese institutions and businesses are exposed to significant risks of fraud and money laundering due to the lack of robust document verification systems and, consequently, identity verification.
Therefore, companies wishing to operate in Japan must meet very strict and increasingly stringent KYC requirements. Risk-based strategies also play a fundamental role: in addition to ensuring the client's identity, in some cases, the source of income is requested and must align with the account's risk levels. Continuous monitoring of transactions and periodic review of client records are also required.
Challenges in Document Verification in Japan
Document verification in Japan is a complex process that requires attention to many factors to ensure the process's effectiveness and security. Japanese documentation includes some unique documents that may surprise traditional identity verification providers, necessitating careful analysis.
Regarding formats, a large portion of Japan's documentation complies with ICAO (International Civil Aviation Organization) standards, although chips and other security measures may vary depending on the issuance date or type of document.
Key Documents: My Number Card, Passport, Driver's License, and Residence Permit
The most common identity documents in Japan are the National ID, also known as the My Number Card, passport, driver's license, and residence permit for foreigners. Each document has its features, which we will analyze below.
National ID (My Number Card)
The My Number Card is an official Japanese document that includes the unique identification number assigned to each resident. In addition to serving as personal identification, the card includes biometric information and is equipped with RFID chips to enhance security, reduce document fraud, and facilitate identity verification.
Passport
The passport is an internationally recognized document that proves the holder's identity and citizenship. In Japan's case, passports issued in the country include advanced security measures such as holograms, RFID chips, or NFC technology. The goal is to facilitate the passport holder's identity verification and reduce the risks of document forgery.
Analyzing passports in Japan is an interesting topic. As in other countries, there are different types of passports based on their use. For example:
- Ordinary Passports: There are two types of ordinary passports. The main difference between them is their validity period: one is valid for five years, while the other is ten years.
- Official Passport: Issued to public servants on temporary overseas missions.
- Diplomatic Passport: For ambassadors, high-ranking politicians, and royal family members.
- Emergency Passport: Issued for urgent situations where an ordinary passport cannot be issued. It is usually valid for a single trip and has limited validity.
Driver's License
The driver's license is another widely used document for identity verification. In addition to certifying the holder's authorization to drive, this document contains detailed personal information and security measures that ensure its authenticity.
Residence Permit
For foreign residents in Japan, the residence permit is an essential document that certifies the individual's legal status and identity. Issued by each region, albeit on a national level, this permit includes security features that allow for the verification of its authenticity and the holder's identity when required.
Didit: Transforming Identity Verification and KYC and AML Compliance in Japan
In a competitive market characterized by high standards of rigor and strictness, identity verification and anti-money laundering prevention are fundamental in Japan. In this context, Didit is revolutionizing the industry by offering the first and only free and unlimited KYC tool. This way, obligated companies find an agile and secure method to comprehensively comply with compliance requirements in Japan.
How does Didit's solution work? Our tool is tailored to Japan's legal and cultural framework, addressing the critical points that obligated companies must face.
- Document Verification: Didit employs artificial intelligence algorithms capable of validating documents from over 220 countries and territories. In the Japanese context, this is particularly relevant due to the variety of documents that can be used for identity verification, as well as the technology applied against fraud. Our engine detects inconsistencies, works with different scripts, and adapts its verification based on the presented document. Learn more about our document verification.
- Facial Recognition: Document fraud has become increasingly sophisticated. To counter this, we use both active and passive liveness detection tests. This ensures that the person identifying themselves is indeed the document holder, minimizing the risk of stolen or forged identities. Learn more about our facial recognition.
- AML Screening (optional): In addition to our free identity verification service, we also offer a premium service for real-time checks against watchlists, international sanctions databases, and searches for Politically Exposed Persons (PEPs). This process is essential for complying with the aforementioned regulations, such as the Act on Prevention of Transfer of Criminal Proceeds. Learn more about our AML Screening solution.
What Official Documentation Does Didit Verify in Japan?
Didit's service for Japan is specially designed to verify the main Japanese identity documents: National ID, passport, driver's license, or foreign residence permit. All of this is done for free, reducing the operational costs for companies operating in the country by up to 90% compared to other identity verification market alternatives.
In summary, Didit is at the forefront of transforming identity verification and KYC and AML compliance in Japan. As a leader in the artificial intelligence market, specializing in identity verification, we can leverage our advanced technologies to serve companies that need to comply with all these financial fraud prevention regulations.
Do you want to revolutionize the way you comply with KYC and AML regulations in Japan? Click the banner below and reduce your compliance department's expenses.
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Identity Verification, KYC and AML Compliance in Japan
