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November 20, 2015
Financial Services Agency

Important Notice Regarding Regulatory Revisions

Laws related to Specially Permitted Business Operators and Specially Permitted Investment Management Business Operators for Qualified Institutional Investors, etc. have been revised, making it necessary for these providers to make additional submissions.

1. Key changes

  • On May 27, 2015, a law to revise some of the provisions of the Financial Instruments and Exchange Act ("FIEA") related to operators ("specially permitted operators") of Specially Permitted Businesses for Qualified Institutional Investors, etc. ("specially permitted businesses") ("Revised FIEA of 2015") was passed. The law was promulgated on June 3 of the same year. This will also apply to operators of businesses stipulated in Article 48(1) of the Supplementary Provisions of the Act to Partially Amend the Securities and Exchange Act (Act No. 65 of 2006) ("specially permitted investment management business operators").

  • The Revised FIEA of 2015 is stipulated to take effect within one year from the date it was promulgated (i.e. June 3, 2015).

  • In addition, drafts of the relevant Cabinet Orders, Cabinet Office Ordinances and supervisory guidelines based on the law on revision*1 were made public on Friday, November 20, 2015 to invite the general public to submit opinions (public comment) on them (submissions accepted until Monday, December 21, 2015).*2

  • *1The content of the drafts of the Cabinet Orders, Cabinet Office Ordinances and supervisory guidelines reflect the Financial System Council Report dated January 28, 2015 by the Working Group on Investment Management, etc. entitled, "For an Appropriate Regulatory Framework for Funds Targeting Professionals to Ensure Investor Protection and Smooth Flows of Growth-Supporting Money" ("Working Group Report").

    See the Working Group Report here (Japanese only):

    PDFhttp://www.fsa.go.jp/singi/singi_kinyu/tosin/20150128-1/01.pdfopen new window

  • *2On the Financial Services Agency ("FSA") website (Japanese only):

    http://www.fsa.go.jp/news/27/syouken/20151120-1.htmlopen new window

Key features of the Revised FIEA of 2015:

  • Scope of submissions and attachments was expanded.

  • Disqualifying factors were introduced.

  • Scope of conduct control subject to regulations was expanded.

  • Tighter control of specially permitted operators and specially permitted investment management business operators found to have problems was introduced.

  • Limits on the scope of allowable investors have been introduced. (A self-offering after the enforcement of the Revised FIEA of 2015)

2. Additional submissions by existing operators (e.g. submissions required under transitional measures)

  • After the drafts of the Cabinet Orders, Cabinet Office Ordinances and supervisory guidelines are reworked based on the public comments collected, specific requirements (including submissions required under transitional measures) that need to be addressed by operators who have regularly submitted documents in accordance with Article 63(2) of the FIEA (including cases in which this provision is applied mutatis mutandis pursuant to Article 63-3(1) of the same act) and Article 48 of the Supplementary Provisions of the Act to Partially Amend the Securities and Exchange Act (both operators under Article 63 and 48 of the aforementioned Acts or "Existing Operators") will be finally spelled out. The Revised FIEA of 2015 will take effect after these specifics have been decided.

  • Please note that, after the revised act takes effect, Existing Operators will be required to submit additional reports and attachments that have been newly included in the Revised FIEA of 2015, Cabinet Orders and Cabinet Office Ordinances within six months of the date that the act takes effect.

  • Information on the dates on which the revised law etc. take effect and guidance on the documents required to be submitted due to transitional measures, etc. will be posted on the FSA website in late January 2016. Please make sure you address the requirements under the upcoming changes without fail since we will continue to promote additional information through the FSA website. We thus recommend checking out the FSA website periodically - be especially alert for updates that are likely in the early part of each month.

3. Inquiries

Inquiries on the requirements for registration and submissions, procedures, etc. from all overseas operators should be directed to Kanto Local Finance Bureau.

For all non-resident operators

3rd Securities Business Surveillance Section,
Financial Division,
Kanto Local Finance Bureau

Email: kanto-tekikaku@kt.lfb-mof.go.jp

Tel: +81-(0)48-614-0044

Fax: +81-(0)48-600-1232

Opinions on the drafts of the Cabinet Orders, Cabinet Office Ordinances and supervisory guidelines posted in the Public Comment section should be sent to the FSA.*2(Japanese only)

(End)


Overview of the Act for Partial Revision of the Financial Instruments and Exchange Act of 2015 (1)

  • 1. Requirements for Notifiers for Specially Permitted Businesses for Qualified Institutional Investors, etc.

    • arrowAdditional items required to be entered on the notification forms and public notification of these [Act 63(2)-(6)]

    • arrowIntroduction of disqualifying conditions (e.g. five years have not passed since the operator was issued an order for the abolition of business, subject to criminal punishment, etc.) [Article 63(7)]

  • 2. Positioning of Qualified Institutional Investors

    • arrowScope and requirements for qualified institutional investors were introduced to eliminate qualified institutional investors that exist only in name.

      [Article 63(1)]

      (Limited liability investment partnerships wishing to become qualified institutional investors will be required to have at least 500 million yen in invested assets (excluding borrowing) under Cabinet Office Ordinances.)

Overview of the Act for Partial Revision of the Financial Instruments and Exchange Act of 2015 (1)
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Overview of the Act for Partial Revision of the Financial Instruments and Exchange Act of 2015 (2)

  • 3. Conduct control for Notifiers

    • arrowConduct control equivalent to those binding registered operators were introduced [Article 63(11)]

      • Obligation to deliver documents giving an overview, explanation of risks, etc. of the agreement before signing

      • Principle of Suitability (ban on inappropriate solicitations out of line with knowledge, experience, etc. of customers)

      • Duty of Loyalty, Duty of Due Care of a Prudent Manager

      • Ban on transactions that undermine investor interests, etc.

      Note: To ensure free transactions between professionals, the requirement to issue documents before signing, Principle of Suitability, etc. do not apply to transactions with Professional Investors.

    • arrowPreparation and preservation of accounting records, preparation of business reports and their submission to supervisory authorities [Article 63-4]

Overview of the Act for Partial Revision of the Financial Instruments and Exchange Act of 2015 (2)
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Overview of the Act for Partial Revision of the Financial Instruments and Exchange Act of 2015 (3)

  • 4. Measures for notifiers found to have problems

    • arrowIntroduction of supervisory dispositions (order to improve/suspend/abolish business operations) [Article 63-5]

    • arrowIn order to determine the actual situations and protect investor interests, authority to instruct notifiers to submit reports and to conduct on-site inspections has been clearly established. [Article 63-6]

    • arrowThe scope of cases subject to prohibition/suspension by the courts has been expanded to include cases in which business execution has been clearly inappropriate and where there is an urgent need to take measures to prevent damage to investors from spreading, in addition to cases involving violations of laws/orders. [Article 192]

    • arrowIntroduction of stricter penal provisions for failures to notify/false notification (from one-year to five-year prison term), newly introduced penal provisions for violation of order to suspend/ abolish business, etc. (prison term of up to 5 or 2 years) [Article 197-2, Article 198-5]

Overview of the Act for Partial Revision of the Financial Instruments and Exchange Act of 2015 (3)
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Overview of the Act for Partial Revision of the Financial Instruments and Exchange Act of 2015 (4)

Overview of the Act for Partial Revision of the Financial Instruments and Exchange Act of 2015 (4)
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