(Corrects month in seventh paragraph to October from November)
By Sumio Ito
TOKYO, April 21 (Reuters) - Japan’s financial regulator has stepped up scrutiny of banks on their measures against money laundering and terror funding, ahead of checks by a global body for fighting illicit finance, several people with knowledge of the matter told Reuters.
The Financial Services Agency (FSA) sees as patchy Japanese banks’ measures for fighting criminal abuse of the financial system and is increasingly concerned that without an appropriate response international trust in the system could be shaken, they said.
The FSA is surveying the banks and will pull together results this summer, and then seek an industry-wide bolstering of standards before the Financial Action Task Force (FATF) evaluates Japan’s overall performance in 2019.
The regulator’s move comes as FATF, which sets standards on combating money laundering and terror funding, looks to identify and disrupt the funding of terrorist groups such as Islamic State - a top priority for the Paris-based organisation.
In its evaluation of Japan - part of its periodic assessment of its 37 members - FATF will look at the effectiveness of its laws on money laundering and terrorist funding, and judge whether an institutional framework for supporting efforts exists.
FATF is finding other countries lacking, with only two of the 11 countries already evaluated having passed.
In 2014 Japan was criticised by the FATF for having failed to introduce necessary anti-money laundering and counter terrorist financing laws, with the government enacting new legislation in response in October last year.
The FSA, which began its survey in March and has started collecting responses, aims to gauge banks’ awareness of money laundering and financing of terrorist groups. It will zero in on how banks have responded to legal changes designed to combat money laundering and financing of terrorism, the sources said.
An FSA spokesman declined to comment.
FATF was established in 1989 to combat money laundering. Its mandate later grew to developing efforts against the financing of terrorism, which now form its top priority.
The FSA has been at the centre of Prime Minister Shinzo Abe’s push to buttress global faith in Japan’s economy. It has looked previously to raise regulatory standards in areas from corporate disclosure to audit quality. (Reporting by Sumio Ito; Additional reporting by Takahiko Wada; Writing by Thomas Wilson and Sam Nussey; Editing by Muralikumar Anantharaman)