TOKYO (Reuters) - Japan’s financial regulator, concerned that banks are falling behind in their efforts to block money-laundering and other illicit finance, is urging lenders to do more, two people with direct knowledge of the matter said on Friday.
The Financial Services Agency will set up a public-private panel to discuss the issue and push for more rapid changes, the sources told Reuters.
Japan faces a peer review in 2019 by the Paris-based Financial Action Task Force, a 37-nation group set up by the Group of Seven industrial powers to fight illicit finance. A critical report by the group could result in sanctions that could include shunning Japanese banks out of the global banking network.
“Even a single financial institution with low-level anti-money laundering and terrorist-financing measures is enough to affect the whole financial system,” a senior FSA official said recently. “That could invite criticism that Japan’s anti-money laundering efforts are weak.”
The new group, which will include members of the Japanese Bankers Association, will begin meeting next month, said the sources, who were not authorized to discuss the matter publicly.
FSA and bank association officials declined to comment.
The FSA, which has been urging the industry to step up measures to detect suspicious transactions, is especially concerned about the preparedness of Japan’s smaller banks after conducting a survey last year that showed widespread deficiencies.
In one recent incident, a bank processed “unnatural transactions” involving an overseas business entity without proper checks for possible illicit money transfer, an FSA official told a recent meeting with regional bank heads, according to people briefed about the meeting.
“We have grave concern for risk management situation,” the official said.
Reporting by Sumio Ito and Takahiko WadaAdditional reporting by Taiga Uranaka; Editing by William Mallard and Kim Coghill