Name
Global FinTech Guide
Country _ Name
Japan
SectionTitle
Crowdfunding/crowdinvesting/crowdlending
Body
FinTechs belonging to this category operate crowdfunding, crowdinvesting and crowdlending platforms on which money is raised to invest in various projects, mainly start-up companies and real estate projects.

Crowdfunding is not a defined financial service, but generally used to describe donation-based crowdfunding (the investor donates the money to the project), reward-based crowdfunding (the investor receives an often symbolic consideration for his investment), equity-based crowdfunding (crowdinvesting: the investor participates in the profits of the financed project or acquires shares or debt instruments) or lending-based crowdfunding (crowdlending: the investor is reimbursed at the end of the project with or without interest).

Introduction

Attitude of the country towards crowdfunding, crowdinvesting and crowdlending platforms

The Financial Instruments and Exchange Act and the Act on Specified Joint Real Estate Ventures have been amended to improve the legislation for crowdfunding, and the number of companies participating in the industry has been steadily increasing.
According to research by a private research company in 2022, the need for crowdfunding in Japan is high and its marketability is seen as strong.

Especially, the number of individual investors in real estate crowdfunding has increased more than tenfold in seven years. In light of these changes in circumstances, the Ministry of Land, Infrastructure, Transport and Tourism has established a study group to examine Specified Joint Real Estate Ventures and is reviewing the Specified Joint Real Estate Venture system.


Legal affairs

Obligations and requirements to provide crowdfunding, crowdinvesting and crowdlending platforms described above

The necessary registrations and laws to be applied for each crowdfunding service are as shown in the following table:

 

 Person seeking funds

Platform operator

Donation-based crowdfunding

N/A

N/A

Reward-based crowdfunding

N/A

Registration as a Funds Transfer Service (However, it depends on the type of business)

Crowdinvesting (Fund type)

Type of investment in business

N/A

Registration as a Type-II Financial Instruments Business/ Type-II Small Amount Electronic Public Offering Service Provider

Type of investment in real estate

Permission for Specified Joint Real Estate Ventures

  • Registration as a Type-II Financial Instruments Business/ Type-II Small Amount Electronic Public Offering Service Provider *1
  • Permission for Specified Joint Real Estate Ventures
Type of investment in securities

Registration as an Investment Management Business

Registration as a Type-II Financial Instruments Business/ Type-II Small Amount Electronic Public Offering Service Provider

Crowdinvesting (Stock type)

N/A

Registration as a Type-I Financial Instruments Business/ Type-I Small Amount Electronic Public Offering Service Provider

Crowdlending (Social lending)

N/A

  • Registration as a Type-II Financial Instruments Business/ Type-II Small Amount Electronic Public Offering Service Provider
  • Registration as a Money Lending Business *2
*1 Only if the person seeking funds is a “Special Enterprise” under the Act on Specified Real Estate Joint Venture
*2 Where a platform operator lends money to a person seeking funds
Crowdinvesting (Stock type) is self-regulated by the Japan Securities Dealers Association (JSDA). The total amount of stock issued must be less than JPY 100 million and the investment amount per share must be less than JPY 500,000.
Crowdlending in Japan is generally not a scheme in which fund providers directly lend to a person seeking funds via a platform. This is because in Japan, if a person makes a loan on a regular basis, registration for a Money Lending Business is required. However, it is typically impractical for fund providers to do this. In Japan, the scheme is that a fund provider makes a capital contribution to an intermediary company based on a silent partnership agreement, and the intermediary company receiving the capital contributions in turn lends the funds to the person seeking them. In this case, the intermediary company needs to register as a Type-II Financial Instruments Business or Type-II Small Amount Electronic Public Offering Service Provider when conducting the act of offering capital contributions, and also needs to register as a Money Lending Business when lending capital contributions to the person seeking funds.

Additional comments regarding the legal situation for crowdfunding, crowdinvesting and crowdlending platforms or what FinTech’s must be aware of in this business area

In addition to the above registration requirements, the operator shall comply with further regulations under the FIEA (obligation to form an operational control framework, obligation to disclose information, among others).

Depending on the business contents, the Consumer Contract Act (nullity of clauses that impair the interests of consumers unilaterally), the Act on Specified Commercial Transactions (restrictions on advertisement of mail order sales), the Act on Prevention of Transfer of Criminal Proceeds (obligation to confirm identification and the like), the Act on the Protection of Personal Information, the Act Regulating the Receipt of Contributions, the Receipt of Deposits, and Interest Rates (prohibition on receipt of deposits and the like), or the Interest Rate Restriction Act, among other regulars may become an issue and need to be complied with.

In addition, when providing crowdfunding services, companies must not only comply with governmental laws and regulations, but also with the self-regulations of industry associations.


Economic conditions

Market size for crowdfunding, crowdinvesting and crowdlending platforms and biggest companies in this business area

According to research by a private research company, the crowdfunding market size was JPY 184.7 billion in 2020 and JPY 164.2 billion in 2021. According to research in 2021 by the Japan Crowdfunding Council, real estate-type and reward-based crowdfunding were growing rapidly in terms of market size through 2020. Especially for real estate type crowdfunding, the market is rapidly expanding due to the development of new laws in 2017. According to the Ministry of Land, Infrastructure, Transport and Tourism, the market doubled year-on-year to about JPY 60.4 billion in 2022, expanding by about 47.8 times from 2018.

Additional comments regarding the economic situation for crowdfunding, crowdinvesting and crowdlending platforms or what FinTech’s must be aware of in this business area

N/A



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