The Japan Financial Services Agency published the results of its public consultation and its updated thinking on allowing local governments to receive payments such as loan principal and interest income through prepaid payment instruments under the Fund Settlement Act. The Agency concludes that enabling prepaid payments for these local government revenues is appropriate, citing operational benefits and a low risk of regulatory circumvention or financial crime. The consultation ran from 9 January to 9 February 2026 and generated seven comments, which the Agency summarised alongside its responses. The review follows proposals from local governments under the Cabinet Office’s Decentralization Reform initiative to expand prepaid payment options to items including loan principal and interest income, late fees and late damages, real estate sales prices, fines, damages, and refunds due to unjust enrichment. The Agency focused its assessment on loan principal and interest income, late damages, damages, and return of unjust enrichment, noting that arrears fees, real estate sales prices, and fines can already be paid via prepaid methods. In its analysis, the Agency referenced the Financial Services Council Working Group’s approach to donations by prepaid instruments, and argued that because these payments are made to local governments as public revenues, the risks of foreign exchange regulation evasion, money laundering, and fraud are considered low; it also noted that a similar approach could apply to other local-government public funds that are revenues expected to be used for public services. Payments of donations to local governments via prepaid payment instruments are addressed separately under Article 23-3(2) of the Cabinet Office Ordinance on Prepaid Payment Instruments.

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