Japan's Payment Services Act Reform: Regulation of Cross-Border Collection Services

1. Background to the Reform

On June 6, 2025, Japan formally passed the Act Partially Amending the Payment Services Act (the "Amendment"). The legislation responds to the continuing digitalization of financial services. It aims to protect users while promoting innovation and revises the regulatory framework applicable to remittance and payment services, also known as collection agency services (shūnō daikō).

The Amendment's most significant change is that cross-border collection services are, in principle, expressly classified as "exchange transactions" and therefore brought within the regulatory framework for Funds Transfer Service Providers. Article 2-2(ii) of the Amendment provides that an entity commissioned by a creditor or debtor to move funds between Japan and another country through a collection arrangement is conducting a regulated transaction and must hold one of the following authorizations:

• A banking license; or
• Registration as a Funds Transfer Service Provider.

Following passage of the Amendment, Japan's Financial Services Agency (FSA) published draft implementing Cabinet Office Orders and administrative guidelines for public consultation on December 16, 2025. The consultation closed on January 19, 2026. These drafts further clarify the specific exclusions and high-risk categories under the new regulatory framework.

This represents a substantive policy shift. In the past, certain cross-border collection structures were considered capable of operating outside financial regulation if appropriately designed. The Amendment and the recently published draft rules now expressly bring pure cross-border collection models within the regulatory perimeter, removing much of that uncertainty.

2. Regulatory Impact and Key Timeline

For remittance and payment services, the Amendment introduces new rules for cross-border collection agency services, known as cross-border shūkin daikō: unless a statutory exemption applies, providers of these services must register as Funds Transfer Service Providers for user-protection and anti-money-laundering purposes.

The Amendment will take effect on a date specified by Cabinet Order within one year of its promulgation on June 13, 2025. The new regulatory regime is therefore expected to take effect no later than June 12, 2026. Certain cross-border collection service providers may qualify for transitional measures.

Key timeline:

• June 6, 2025: The Amendment was passed.
• June 13, 2025: The Amendment was promulgated, with its effective date to be specified by Cabinet Order within one year.
• December 16, 2025: The FSA published draft Cabinet Office Orders and administrative guidelines for public consultation.
• January 19, 2026: The public consultation closed.
• No later than June 12, 2026: The new regulatory regime is expected to take effect.
• Within six months after the effective date: Deadline for non-exempt service providers to submit a registration application.
• Within two years after the effective date: Deadline to complete registration.

3. What Arrangements Constitute Cross-Border Collection Services?

Article 2-2(ii) of the Amendment defines cross-border collection services very broadly. It covers the transfer of funds between a debtor (the recipient) and a creditor, other than by direct delivery of cash, where funds move:

• From Japan to another country; or
• From another country to Japan.

Three points are important when interpreting this definition:

1. Multi-tier mandates are also regulated. The statutory language expressly states that, where cross-border movement of funds is involved, a mandate from the recipient includes multi-tier arrangements, including sub-mandates and further sub-mandates.

2. Domestic business is unaffected, but each participant in a cross-border service chain may be regulated. Regulation of purely domestic collection arrangements remains unchanged. In a cross-border arrangement, however, not only the directly commissioned provider but also downstream subcontractors may fall within Article 2-2 and need Funds Transfer Service Provider registration.

3. Domestic entities involved indirectly may also need to register. During the fourth meeting of the FSA's Payment Services Working Group, the FSA expressed the view that even if an overseas service provider is directly commissioned by an overseas recipient, a Japan-based entity that follows the overseas provider's instructions and carries out transfers involving Japan may itself need Funds Transfer Service Provider registration. The Amendment's wording codifies this position.

Because the definition—"an act of moving funds from Japan to another country or from another country to Japan"—is extremely broad, the central practical question is whether a particular arrangement qualifies for an exemption.

4. Six Categories of Exemption

The specific categories of exemption are to be prescribed by Cabinet Office Order. The final text has not yet been published, but public consultation on the relevant draft amendments to the Cabinet Office Orders closed on January 19, 2026. Consistent with the recommendations in the 2025 Payment Services Working Group Report, the drafts identify the following six categories that are expected to be excluded from the definition of an exchange transaction.

Important: No exclusion applies if the relevant structure or conduct raises significant user-protection concerns.

A. Collections Through a Bank or Funds Transfer Service Provider

A cross-border collection service is excluded where the debtor pays a bank or registered Funds Transfer Service Provider, which then delivers the funds to the recipient. In a multi-tier arrangement, the exclusion applies only if the collection function is formally sub-delegated to the bank or Funds Transfer Service Provider. Merely instructing the debtor to remit funds to an intermediary's bank or transfer account does not qualify for the exclusion.

B. Escrow Services

Cross-border escrow services are expressly excluded from the scope of exchange transactions. This is consistent with the regulatory approach taken before the 2025 amendment, under which escrow arrangements had already been excluded from regulation for certain collection structures involving individual creditors.

C. Platform Operators Involved in the Underlying Contract

Cross-border collection by a transaction-platform provider may also be excluded if the platform operator played an indispensable role in the formation of the underlying contract that gave rise to the monetary claim. This exemption is intended for platform businesses directly involved in structuring or concluding the underlying commercial transaction, rather than platforms that merely process payments.

D. Intra-Group Collection Arrangements

An arrangement may be excluded where the recipient and the collection service provider belong to the same corporate group, as entities within a corporate group generally have sufficient economic unity not to require foreign-exchange regulation. The exclusion does not apply, however, if the recipient acquired the claim to circumvent foreign-exchange regulation—for example, if one party acquires a claim from a third party and then remits the collected funds back to the transferor.

E. Collections Governed by Other Regulatory Frameworks

Cross-border collection services involving claims governed by other legal frameworks are also excluded. These notably include:

• Settlement between credit card issuers and acquirers within international card schemes;
• Collection services for credit card merchants; and
• Collections relating to prepaid payment instruments issued by third-party issuers registered in Japan.

These areas are already subject to separate regulatory supervision, so additional exchange-transaction regulation is unnecessary.

F. Collections by Commissioned Service Providers

The exclusion also extends to cross-border collections conducted by:

• Service providers commissioned by escrow operators or transaction platforms; and
• Service providers acting on behalf of banks or registered Funds Transfer Service Providers.

These six exemptions provide valuable clarity for a range of business models, including platforms, escrow services, intra-group structures, and card-related settlement arrangements. Merchants should nevertheless carefully assess whether their activities could still be classified as exchange transactions, particularly where user-protection concerns exist or a structure could be viewed as an attempt to circumvent regulation.

5. Three High-Risk Red Lines

The following three situations are expressly identified as high risk and should be avoided when merchants design their business structures:

1. No authority to receive payment on another party's behalf (dairi-juryō): A transaction is considered high risk if the debtor's legal obligation is not discharged when the service provider receives the funds.

2. Cross-border collection services where delivery of funds may be obstructed: This refers to arrangements in which a platform subcontracts collection or remittance to another service provider and limits its own responsibility to selecting and supervising that provider.

3. Gambling and unregulated investment schemes: Collection services involving gambling funds, such as funds for overseas online casinos, or funds used to subscribe for newly issued securities or derivatives, are subject to strict regulation.