Korean AI Services Face Japan's Tight Regulatory Grip

Korean AI-based digital content services are rapidly growing in Japan's market. However, Korean corporations operating in this space face various Japanese laws and regulations, including the Money Settlement Act.

According to Choi Hyun-yoon of Gaon Lawyers, when app services operated on a subscription or point-charging basis receive yen payments from Japanese users and issue points within the app, Korean corporations become subject to these laws. This includes the Money Settlement Act, which imposes regulations on issuers of prepaid means of payment.

One key aspect of this law is that if the unused balance exceeds 10 million yen as of March 31 or September 30 of each year, it must be reported to the Kwandong Finance Bureau and more than half of the unused balance deposited with the Legal Bureau. Foreign corporations are also prohibited from recommending prepaid payments to Japanese users.

The punishment for violating this law varies depending on whether the point corresponds to a self-employed or third-party prepaid payment method. If it's self-employed, imprisonment for up to six months or a fine of up to 500,000 yen is stipulated, but if it's third-party, the punishment rules for corporations can be applied, causing a fine of up to 100 million yen.

Choi Hyun-yoon emphasizes that even if a payment structure is introduced through a Merchant of Record (MOR) or Payment Gateway (PG) company, regulations under the Payment Act will still apply as long as the issuer of the points in the app is a Korean corporation. He recommends preemptive voluntary reporting to manage risks and highlights the importance of designing an issuance structure with these obligations in mind from the beginning.