Japan's finance regulator is considering changing its regulatory framework so that all financial service providers are subject to the same rules, a move that could allow fintech startups to compete directly with traditional banks, Bloomberg News reported Feb. 27.

The Financial Services Agency is studying a regulatory overhaul that could implement new rules that are more based on functions rather than on entities such as banks, insurers and other financial institutions. The study is considering new rules around four key functions, namely settlements, credit, risk transfer and investing.

The move could make the industry more competitive and adaptable, Financial Services Minister Taro Aso told reporters, adding that the regulatory overhaul will take a "considerable amount of time."

A group consisting mostly of academics have been meeting since 2017 to discuss the changes. The group concluded submissions of expert opinions on the four functions at its meeting on Feb. 9.

Fintech companies will benefit from being allowed to compete on a level playing field with banks, said Tsuneharu Miyake, head of financial research at Mizuho Research Institute.

At the same time, a regulatory overhaul could end banks' monopoly on deposit-taking and lending but allow them to enter new businesses, the report noted. Japanese banks have been expanding into other business areas such as asset management amid low interest rates and loan demand in the country.