2544
The Regulation of New Forms of Electronic Fund Transfers in Japan Focusing on Electronic Money
Cross Border Service: Why do We
Need to Examine the Possible
Application of Japanese Laws?
When an overseas payment enterprise provides a
r e s id e n t of J a pa n w i t h s e r v i c e , u n l e s s t h e e n t e r p r i s e
has a presence in Japan, article 61 of the Japanese
Banking law may be applied (Kubota, T., 2003
27
).
Moreover, in the Hourei, the Law Application
Principles Act, the rule governing the application
of laws in private international law has been revised
completely and will become effective in January,
2007. This new rule will make provisions of Japa-
nese law that protect consumers apply to disputes
between foreign companies and consumers living in
Japan as much as possible, when a foreign company
provides goods or services to consumers living in
Japan. It is not clear whether Japanese regulations
for consumer protection currently apply to overseas
Electronic Money service providers because the
arguments regarding this new general rule have
not yet been fully explored.
28

Online Escrow Service
29
I n a n o n l i n e e s c r ow s e r v i c e , o n e p a r t y d e p o s it s h i s
credit card or debit card having monetary value

with an escrow agent. The agent delivers these
deposits to the opposing party after the agent
FRQ¿UPV WKDW WKH RSSRVLQJ SDUW\ KDV IXO¿OOHG
his obligations. Moreover, although the fee for
escrow services is consideration not for exchange
services, but for temporary retention services,
the target object of the service includes monetary
value. This service may therefore be interpreted
DVDQ³H[FKDQJHWUDQVDFWLRQ´
Online escrow services may also contradict
the Deposit Law (Kubota, T., 2003
30
).
WHEN OVERSEAS DIGITAL GOLD
CURRENCY ENTERPRISES
PROVIDES RESIDENTS OF JAPAN
WITH SERVICE
Why do We Need to Examine the
Possible Application of Japanese
Laws?
For the purposes of this chapter, Digital Gold Cur-
UHQF\LVGH¿QHGDVDQ\HOHFWURQLFFXUUHQF\LVVXHG
by a private company to be used for international
online payments, and involving international cur-
rency exchange. Most Electronic Money issuers
limit domestic consumers to those within the same
country as the one where the issuer resides. When
an overseas Digital Gold Currency enterprise
provides a resident of Japan with service, and
the enterprise does not have a presence in Japan,

Japanese law may be applied as stated. The next
paragraph is based on the assumption that there is
a theoretical possibility that Japanese regulations
apply to overseas electronic money services.
The Possibility of Public
Law-Regulations being Applied to
Overseas Digital Gold Currency
It will be examined whether Japanese regulations
on Electronic Money apply to the services provid-
ed by overseas Digital Gold Currency companies
to consumers living in Japan, taking e-gold as an
example.
31
A commission is collected from the
side receiving money at the time of receipt.
E-gold works as follows. A user pays cash
into his account of e-gold in order to purchase
e-metal, which is the Digital Gold Currency of
the e-gold system, and stores such e-metal in his
account. The worth of the e-metal in his account
is displayed as a result of conversion into main
currencies. Usually, e-gold backs the e-metal with
2545
The Regulation of New Forms of Electronic Fund Transfers in Japan Focusing on Electronic Money
gold equivalent to the worth of the e-metal and
the conversion rate of e-metal in user accounts
ÀXFWXDWHV DFFRUGLQJ WR FKDQJHV LQ WKH PDUNHW
price of gold.
The components of e-gold are as follows: (i)
e-gold issues e-metal, electronic data (money

value information) corresponding to funds paid
by e-gold users (ii) users holding e-metal can
electronically transfer this to other users' accounts
by giving directions to e-gold, and, thereby, can
use such e-metal to settle debts, such as purchase
goods and (iii) the holder of e-metal can request
that e-gold the user’s e-metal into cash. Component
(iii) is equivalent to General Cashability.
E-gold seems to be comparable to Electronic
Money issued in Japan with General Cashability
and versatility, since the money-value information
is recorded solely on the server of e-gold.
6LQFHWKHUHLVQRFHUWL¿FDWHWKH3UHSDLG&DUG
/DZDQGWKH%LOODQG6LPLODU&HUWL¿FDWHV&RQWURO
Law do not apply to e-gold transactions. However,
there seems to be a risk that e-gold transactions
would be contrary to the Deposit Law and the
Banking Law.
BRIEF COMPARISON WITH
REGULATIONS OF U.S. AND E.U.
General
In order to search for desirable countermeasures
to the rapid spread of Electronic Money in Ja-
SDQLWPD\EHXVHIXOWRVWXG\WKH³ZDLWDQGVHH´
regulations in place in the U.S. and the rigid and
detailed regulations in the E.U., which, among
other things, limit issuers to banks in the E.U.
U.S. and Japan
The principal legislative acts regulating electronic
payment system in the U.S. are the Electronic

Fund Transfer Act (ETFA) and its associated
regulations (Regulation E). They basically target
FRQVXPHUSURWHFWLRQDQGDSSO\WR³DFFRXQWDEOH´
VWRUHGYDOXHV\VWHPV7KLV³DFFRXQWDEOH´FODV-
VL¿FDWLRQLVGHFLGHGEDVHGRQZKHWKHUPRQHWDU\
value information may be affected by a change
in a consumer’s bank account. As previously
indicated, this chapter focuses on the unac-
countable type. In state-level regulations, Money
Transmitter Laws apply to non-banking payment
services including electronically stored value.
Only authorized transmitters and distributors may
issue and sell certain types of means of payment.
Authorized transmitters have to safely retain
advance payment funds in full until used by a
consumer. Authorized distributors have to send
advance payment funds to authorized transmitters.
These regulations preserving advance payment
funds are stricter and cover more services than
the regulations by the Japanese Prepaid Card
Law, s tated previou sly i n p ar t . T his reg u lation for
preserving advance payment funds may serve as
a guide to Japanese authorities.
E.U. and Japan
In Directive 2000/46/EC of the European Parlia-
ment and of the Council of September 18, 2000 on
the taking up, pursuit of, and professional supervi-
sion of the business of electronic money institutions
WKH³(&'LUHFWLYHRQ(0´(OHFWURQLF0RQH\LV
GH¿QHG DV³PRQHWDU\YDOXH DVUHSUHVHQWHG E\D

claim on the issuer which is: (i) stored on an elec-
tronic device (ii) issued upon the receipt of funds
of an amount not less in value than the monetary
value issued (iii) accepted as means of payment
by undertakings other than the issuer” (Item (b),
3DUDJUDSK  $UWLFOH7KLV GH¿QLWLRQ LQFOXGHV
both the IC-chip type and the Server-managing
type, however, as already written, E.U. regulations
are applied only to the External type.
Under the EC Directive on EM, issuers of
electronic money must obtain business licenses.
In addition, the Directive regulates prohibitions on
2546
The Regulation of New Forms of Electronic Fund Transfers in Japan Focusing on Electronic Money
engaging in other businesses, initial and ongoing
capital requirements, and limitations on invest-
ments. E.U. regulations are especially rigid in
limiting issuers to banks only.
One of the principal differences between the
electronic money regulations of the E.U. and Japan
is redeemability (Article 3, the EC Directive on
EM). Japanese electronic money issuers in Japan
do not give refunds for purchased electronic money
in order to avoid violating the Deposit Law. Based
on the Chairman Memorandum, Japanese authori-
ties may be favor of granting General Cashability
to electronic money through discussions on the
Deposit Law and the Banking Law.
POSSIBLE LEGISLATION ON
ELECTRONIC MONEY IN THE

FUTURE
The Chairman Memorandum does not specify
how the government should legislate to protect
consumers and encourage the development of the
Electronic Money industry in Japan. Professor
Shinsaku Iwahara suggests concrete ideas for
amending the Prepaid Card Law (Iwahara, S.,
2005
32
). Some practitioners argue that the govern-
ment should divide the Prepaid Card Law into a
part regulating electronic records and another
part regulating all other prepaid vouchers, and
establish new legislation covering electronic
money. In order to determine ideal regulations,
it is necessary to take into consideration point-
based reward programs and Server-managing type
services especially (Maeda, Y., 2005
33
).
In addition, establishing and amending
legislation in response to the expansion of the
online payment service business may grant legal
OHJLWLPDF\WRQRQ¿QDQFLDOLQVWLWXWLRQVHQWHULQJ
into the general payment business, including the
R QO L QH SD \P HQWE XV L QH VV 6 RPH H[ L VW L QJ¿ Q D QFLDO
institutions, including banks, are not in favor
of such expansion, and it will take a great deal
of time to introduce radical regulations dealing
with electronic money. The need for regulations

protecting consumers is urgent, however, and
therefore it seems reasonable to develop such
regulations prior to other regulations.
EXTENDED RESEARCH I: REAL
MONEY TRADE
Why do We Need to Examine the
Possibility of Application to RMT?
An employee of an online game management
company created virtual currency within an on-
line game without proper authority, and obtained
XQMXVWSUR¿WVWKDWDPRXQWHGWRWHQVRIPLOOLRQV
34
The Ministry of Economy, Trade and Industry
requested online game management industry to
take a precaution. It is not yet clear whether the
Ministry of Economy, Trade and Industry will
establish a new regulation system involving virtual
currency, introduce new guidelines, or suggest
self-regulation by the online game management
industry.
In November 2006, a foreign resident in Japan
who sent 100 million yen to China without the
SURSHU FHUWL¿FDWLRQ ZDV DUUHVWHG DQG FKDUJHG
with being part of an RMT agency business. It is
generally said that RMT broker payments should
be regulated to some extent.
RMT Broker
RMT means exchanges of data corresponding
to items and virtual currency in online games
and user accounts in online games with assets,

mostly real currency, in the real world. An RMT
broker offers such services as mediating deals,
escrow services for sale prices of items, buying
items from sale candidates, and selling them to
purchase candidates, and so forth.
2547
The Regulation of New Forms of Electronic Fund Transfers in Japan Focusing on Electronic Money
Possibility of Regulations on RMT
Broker
Service to be Examined
Among the various online payment services that
u s e a n R M T b r o k e r, t h e m o s t l i k e l y t o b e r e g u l a t e d
are escrow services, as they mediate money trans-
fers between users who wish to purchase data or
accounts and users who wishes to sell them.
Regulations by Public Laws Such as
the Banking Law
Because the mentioned escrow service retains
funds temporarily, there is a possibility that
such services will be against the Deposit Law.
Moreover, any payment between a purchase can-
didate who is the user of an online game, and a
sale candidate may be against the Banking Law.
7KHDUJXPHQWVLQSUHYLRXVO\PHQWLRQHG³RQOLQH
escrow service” apply here as well.
Foreign Payments: Money Laundering
An RMT broker is comparable to an Electronic
Money entrepreneur in respect of the possible
application of money laundering-related regula-
tions. However, unlike with general Electronic

Money, RMT brokers in Japan are numerous and
are relatively small-scale, and their services are
OLPLWHGWRWKHVSHFL¿FSOD\HUZLWKZKLFKDXVHU
is also engaged in RMT. If it is revealed later
that the broker was temporarily used for money
laundering purposes, it is more probable that a
court will judge that the RMT broker recognized
the fact that their service was used for money
laundering at that time.
Domestic Deployment of Online
Game Which Features Conversion
Virtual Currency to Real Money
When an online game which can perform General
Cashability into the currency of the real world
from currency in a game is developed for Japan,
the converting service concerned examines the
SRVVLELOLW\RIFRQÀLFWLQJZLWKSXEOLFODZUHJXOD-
tions in Japan.
35
As mentioned, even when the
concerned online game management entrepreneur
does not have a base in Japan, since the laws
protecting consumer may be applied, they must
be considered.
A user can purchase currency in a game, and
can sell and buy within the game using such
currency. Since dealing within a game remains
directly in the currency of the game, and the
likelihood of violating the Banking Law is not
very high, the possibility that the game will be

against the Deposit Law regarding subscription
cannot be denied, depending on the system of
structuring fund transfers and conversions into
and from virtual currency.
EXTENDED RESEARCH II:
POINT-BASED REWARDS
PROGRAMS AND MILEAGE
PROGRAMS
Spread of Point-Based Rewards
Programs and Mileage Programs
Recently, the things to be provided for free under
a points-based rewards program, air miles, and
so forth, have become widespread and are similar
to electronic money in having monetary value.
When a consumer purchases goods and services,
an entrepreneur gives the user points at no cost,
and the consumer can use these points to purchase
goods and services from the same entrepreneur
2548
The Regulation of New Forms of Electronic Fund Transfers in Japan Focusing on Electronic Money
later. Mileage is monetary value which an airline
gives to the user using one of its airplanes.
The point-based reward system has conven-
tionally only been used for purchasing goods
and service from the entrepreneur who issued
the points. Increasingly, however, many issu-
ers of points and Mileage are forming business
partnerships and these monetary value systems
have become more versatile. In response to the
expansion of this versatility, it will also be nec-

essary to consider the application of public law
regulations on Electronic Money to point-based
or mileage systems.
Discussions So Far
The Prepaid Card Law does not apply to point-
based or mileage systems, as an entrepreneur
delivers points or miles to consumers at no cost,
that is, accumulating points is not prepayment
(FSA, 2004a
36
).
Subjects to be Studied Towards in
the Future
Points and miles are property rights exchange-
able for goods or services. If a holder expects
their points or miles to become more versatile,
the necessity for consumer protection may arise
(Sugiura, N., 2003
37
). In recent years especially,
when an entrepreneur offers a points with high
trade-in value as an incentive for consumers to
buy, consumer purchasing increases, and the
points become more valuable. If different point-
based rewards programs become more closely
associated, versatility will increase considerably
in the future. It may thus become necessary to
consider the regulations from the viewpoint of
consumer protection.
The excessive regulations may be cumbersome

for small-scale retail stores, and such stores may
be forced to discontinue point-based reward sys-
tems (Maeda, S., 2005
38
). The author’s opinion is
that such regulations may apply only to services
that issue points or Mileage with a certain level
of versatility, hold a certain amount of non-con-
sumed monetary value in their system, or are
regarded as currency-like by the public. Whether
or not a service is regarded as currency-like may
depend on various characteristics, including how
long issued points or Mileage are available after
issuance and further versatility obtained through
different issuers’ partnerships. Regarding the
amount of non-consumed monetary value, it
seems rational to set criteria much higher than
the number indicated by the Prepaid Card Law
because many issued points and Mileage could
very possibly expire.
FUTURE RESEARCH DIRECTIONS
The Nomura Research Institute predicted that the
economic market size of points and mileage is-
sued by companies will be over 450 billion yen in
WKH¿VFDO\HDU1RPXUD5HVHDUFK,QVWLWXWH
2006b
39
). Since 2005, the institute has advocated
D QHZ FRQFHSW ³EXVLQHVV FXUUHQF\ LVVXHG E\
private companies” including points and mileage

broadly and has urged establishing new legisla-
WLRQVIRU³SULYDWHFXUUHQF\´LQFOXGLQJFRQVXPHU
protection (Nomura Research Institute, 2006a
40
).
However, such new legislation is likely to impose
excessively burdensome and unnecessary costs on
points and mileage systems. Points and mileage
are essentially a part of the promotional activities
of private companies and excessive burdens may
unfairly constrain those commercial activities.
The FSA does not seem to have taken a positive
view of this new concept either.
One related interesting theme in the near future is
how to resolve the issues of virtual economic trans-
actions such as Second Life in relation to existing
¿QDQFLDODQGFRQVXPHUSURWHFWLQJUHJXODWLRQV$V
2549
The Regulation of New Forms of Electronic Fund Transfers in Japan Focusing on Electronic Money
stated, there are many legal uncertainties regarding
economic activities in Second Life (Nakazaki, T.,
2007b, 2007c, 2007d
41
). The FSA seems interested
in these issues. These issues include taxation issues,
online gambling regulations, general consumer
protection regulations, and promoting regulations
other than ones related to the legal issues discussed
so far in this chapter.
Another theme is how to deal with virtual prop-

erty, including intellectual property. In the U.S.,
WKHUH DUH VHYHUDO IDPRXV IXOOÀHGJHG SXEOLVKHG
discussions on laws related to this latter theme (Lem-
ley, M. A., 2002; Wu, T., 2003; Grimmelmann, J. T.
/)DLU¿HOG-
42
). Of course, Japanese
legislation based on the civil law system differs very
much from U.S. legislation based on the common
law system. However, Japan also needs to determine
how to apply existing legislation and regulations on
physical property to virtual property, and should
consider the experience of the U.S.
Furthermore, the Japanese government is con-
tinuing to introduce a new system of electronic
registration of accounts receivable, which will
enable businesses to assign accounts receivable
HOHFWURQLFDOO\ WKH ³(OHFWURQLFDOO\ 5HJLVWHUHG
Receivables” [Denshi Touroku Saiken]). This new
system is originally designed for B2B businesses,
not B2C businesses such as Electronic Money. It
has been pointed out that this new system may be
used as a method of issuing Electronic Money.
However, the report published by the Working
Group on Information Technology Innovations
and Financial Systems, Sectional Committee on
Financial Systems of Financial System Council
to the public entitled ‘’Towards the Establishment
of an Electronically Registered Receivables Law
(provisional name): Focusing on Approaches to

the Establishment of an Electronically Registered
Receivables Management Body’’ in December,
2006, clearly stated that it is unlikely that the
new system may be used as a method of issuing
Electronic Money (FSA, 2007
43
). In design, an
amendment to or a replacement of the Electronic
Money regulations, the Electronically Registered
Receivables system ought to be considered.
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ENDNOTES
1
I would like to thank Keiko Kaneko, a partner
of Anderson Mori & Tomotsune (AM&T),
for providing helpful comments. I am also
grateful to Takaharu Totsuka, a legal as-
sociate, and Jonathan Ellison, a foreign
legal clerk, of AM&T, for their assistance
in preparing this article.
2
The Working Group on Information Tech-
nology Innovations and Financial Systems
under the Sectional Committee on Financial
Systems of the Financial System Council
of Financial Services Agency (2006). The
chairman memorandum “Issues facing the
development of new electronic payment ser-
vices.” Retrieved March 15, 2007, from www.
fsa.go.jp/news/newsj/17/20060426-5/01.pdf
WKH³&KDLUPDQ0HPRUDQGXP´
3
FSA. (2006). June 2006 newsletter in English
(pp.2-3). Retrieved March 15, 2007, from
/>html#01
4

 7KH¿UVWUHSRUWZDVLVVXHGSXUVXDQWWR³7KH
round-table conference for Electronic Money
and electronic payment” led by the Ministry
of Finance (May 23, 1997). Retrieved March
15, 2007, from />singikai/kinyusei/tosin/1a1201.htm
5
The second report was issued pursuant to
³7KHURXQGWDEOHFRQIHUHQFHIRUGHYHORSLQJ
an environment for Electronic Money and
electronic payment” led by the Ministry of
Finance (June 17, 1998). Retrieved March 15,
2007, from />kai/kinyusei/tosin/1a1202.htm
6
 7KH)(/$UWLFOH'H¿QLWLRQV
Item 1
(7) "Means of payment" shall mean any
one of those instruments mentioned as fol-
lows:
(a) Banknotes, Treasury notes, notes of small
denomination, and coins;
(b) Checks (including traveler’s checks), bills
of exchange, postal money orders, and letters
of credit;
(c)Property values inputted in vouchers,
electrical appliances or other instruments
……on electromagnetic system (electronic,
magnetic or other systems that cannot be
recognized by human perception) and which
can be used for the payment among unspeci-
¿HGRUDODUJHQXPEHURISHUVRQV/LPLWHGWR

those whose usage circumstance is similar to
that of currency as prescribed by a cabinet
order).
2553
The Regulation of New Forms of Electronic Fund Transfers in Japan Focusing on Electronic Money
(d) What corresponds to those mentioned in (a)
and (b) as pre scribed in a cabinet order.
 7KH&DELQHW2UGHU$UWLFOH'H¿QLWLRQV
Item 1
(1)Promissory note (excluding the one coming
under securities or instruments designated
in the following paragraph)
(2) Of the one similar to either the one men
-
tioned in Article, 6, paragraph 1, item (7)-(a)
or item (7)-b of the Law or the one mentioned
in the preceding item, the one which can be
used for payments.
7
Maeda, S. (2005). Regulations on electronic
money. In The First Subgroup of the Study
Group on the Financial System of the Japanese
Bankers Association (Zenginkyo), E-money
legislation (pp.48-67). Tokyo: Zenginkyo.
8
Sugiura, N., & Kataoka, Y. (2003). Future
Electronic Money and its legal infrastruc-
ture (p.38). Retrieved March 15, 2007,
from />sion/2003/20030828-2.pdf
9

The Chairman Memorandum; Iwahara, S.
(2003). Electronic payment and legislation
(pp.597, 599). Tokyo: Yuhikaku.
10
Morishita, T. (2005). Electronic money in
U.S. and Europe. In The First Subgroup of
the Study Group on the Financial System of
the Japanese Bankers Association (Zengin-
kyo), E-money legislation (pp. 18-47). Tokyo:
Zenginkyo.
11
Ms. Hiramatsu is the former chief of the
UHVHDUFKRI¿FHRIWKHSODQQLQJGLYLVLRQRI
the planning and coordination bureau of the
Financial Services Agency. Hiramatsu, M.
(2006). The urgency of protecting electronic
money users: Issues of prepaid electronic
payment on the Internet. Kinyu-zaisei-jijo,
2708, pp.18-21. Tokyo: Kinzai.
12
Mr. Kodaira is the chief of the electronic
payment service division in the innovative
¿QDQFLDOV\VWHPVGHSDUWPHQWRI177&RP-
munications Corporation that issues Elec-
WURQLF0RQH\XQGHUWKHQDPHRI³&KRFRP´
Kodaira, Y. (2006). The urgency of protecting
electronic money users: Japanese government
has to develop legislation in anticipation
of electronic money issuer’s bankruptcy.”
Kinyu-zaisei-jijo, 2708, pp.22-25. Tokyo:

Kinzai.
13
Chairman Memorandum; Kanda, H. (2005).
7KHDQDO\VLVRIWKH¿UVWDQGVHFRQGHOHFWURQLF
m o n e y r o u n d - t a b l e c o n f e r e n c e r e p o r t s . I n T h e
First Subgroup of the Study Group on the
Financial System of the Japanese Bankers As-
sociation (Zenginkyo), E-money legislation
(pp. 6-17). Tokyo: Zenginkyo; and Financial
Supervisory Agency. Points of concern for
¿QDQFLDOVXSHUYLVRU\HWFJXLGHOLQH3
rd
book,
5-1-1(1). Retrieved December 9, 2006, from
http://www/fsa/go.jp/guide/guidej/kaisya/
k005.hrml
14
Please see 4.3.2 and 4.3.3 for details on these
regulations. Iwahara, S. (2005). The ideal
future of regulations on electronic money.
In The First Subgroup of the Study Group
on the Financial System of the Japanese
Bankers Association (Zenginkyo), E-money
legislation (pp. 68-76). Tokyo: Zenginkyo.
15
Iwahara, S. (2003). Electronic payment and
legislation (p.594). Tokyo: Yuhikaku.
16
When providing service available in only one
municipality, the capital must be not less than

10 million yen.
17
Iwahara, S. (2005). The ideal future of
regulations on electronic money. In The First
Subgroup of the Study Group on the Financial
System of the Japanese Bankers Association
(Zenginkyo), E-money legislation (pp. 68-76).
Tokyo: Zenginkyo.
18
Maeda, Y. (2005). Ideal future legislation on
electronic money. In The First Subgroup of
the Study Group on the Financial System of
the Japanese Bankers Association (Zengin-
kyo), E-money legislation (pp. 1-5). Tokyo:
Zenginkyo. See also Iwahara, S. (2003).