To engage in financial services in the US, you need to join industry associations such as Securities and Exchange Commission (SEC).  Likewise, it is crucial to join industry associations in Japan as well if you wish to become a Financial Instruments Business Operator here.  These are the four major organizations that asset managers starting up in Japan should consider joining:

1) JITA: The Investment Trusts Association, Japan

2) JIAA: Japan Investment Advisers Association

3) JSDA: Japan Securities Dealers Association

4) Type II Financial Instruments Firms Association

They are all accredited under the Financial Instruments and Exchange Act of Japan.  Becoming a member of any of these associations is not obligatory, but if you, other than investment advisory business, do not join one, you will need to prepare internal rules in accordance with and implement internal compliance check structures for those rules from scratch, which apparently requires enormous amount of work.  Once you join an association, compliant processing and dispute resolution comes for granted.  Therefore, it is more convenient to join an association.  That is why it is quite essential to become a member.

1) JITA

https://www.toushin.or.jp/english/index.html

JITA is a general incorporated association established to protect investors and contribute to healthy development of investment trusts (toshi shintaku or toshin, Japanese version of mutual funds) and investment corporations.

Investment managers who manage either investment corporations assets or toshi shintaku assets are eligible for JITA membership.

What do they do?

JITA engages in:
- Self-regulation activities
- Membership survey
- Submitting proposals and requests to regulatory authorities
- Educational activities (to update knowledge on toshi shintaku and investment companies)
- Providing information
- Promoting international exchange
- Complaint consultation
- Personal information protection activities

The most important is the self-regulation part.  JITA strives to protect investors by establishing various self-imposed regulations on management, accounting, valuation and disclosure of toshi shintaku.  JITA is also dedicated to enhancing disclosure to investors.  So, they provide management information on individual toshi shintaku to rating agencies and present NAVs of all toshi shintaku on their website.

Number of Members (As of Nov 11, 2020)

Regular members: 194 companies
Supporting members: 38 companies

Membership Fee

Enrollment fee: 5,000,000 yen
Annual membership fee
     Regular members: Depending on number of members and asset size of individual member
     Supporting members: 500,000 yen

2) JIAA

https://www.jiaa.or.jp/index_e.html

JIAA was established to protect investors by ensuring the fair and smooth operation of the investment management business, advisory business and agency business carried out by its members, and at the same time, contributing to the healthy development of these business.

Investment managers who either manage assets under discretionary investment contracts or who have self-managed funds are eligible for the investment manager membership, while investment advisors are for the investment advisory membership of JIAA. 

What do they do?

The Association's activities consist of broadly two categories:
- Measures to ensure fair and appropriate business of its members and to protect investors
- Measures to ensure healthy development and expansion of the investment management, advisory and agency business

Up until now, JIAA has established various self-regulatory rules for investment managers.  These are a few of their work:
- Self-regulatory standards for business execution system
- Business operation standards for fund management business
- Business operation standards for fund wrap business
- Guide to appropriate exercising of voting instructions in discretionary investment agreements
- Guide to trading on closing prices in discretionary investment agreements
- Guide to establishing a business system for conducting transactions based on average unit price
- Self-regulatory standards for joint/identical management of customer assets

Almost all investment management companies who started business in recent years have joined JIAA and are obliged to comply with the association's self-regulatory rules.  Even if you are not a JIIA member, the rules of the self-regulatory organization are not intended to add to the law/regulation but to clarify and embody the law/regulation and to refine the matters to be observed.

JIAA’s rules are stronger than those of other organizations and once you become a member, you will need to establish an internal compliance system to ensure that the association's self-regulation is observed.

Number of members (as of March 31, 2020)

Investment management members: 313 companies
Investment advisory and agency members: 470 companies

Membership Fee

Investment manager
     Enrollment fee: 1,000,000 yen
     Annual membership fee: 0.4 - 8 million yen
                                                  (operating revenue x predetermined coefficient: 0.175-0.325%)
Investment adviser, agent, and intermediary
     Enrollment fee: 200,000 yen
     Annual membership fee: 100,000 yen

3) JSDA

https://www.jsda.or.jp/en/index.html

JSDA was established to ensure the fair and smooth trading of securities and other transactions conducted by its members, to promote the healthy development of financial instruments business, and to contribute to the protection of investors.

Financial instruments firms operating the Type I Financial Instruments Businesses (securities firms) are eligible for regular membership.

What do they do?

JSDA engages in:
- Self-Regulation activities
- Contributing to the development of financial instruments transactions and markets
- Conducting international operations and international exchange

Number of Members (as of Nov. 11, 2020)

Regular members: 268 companies
Specified business members: 17 companies
Special members: 201 companies

Membership Fee

Enrollment fee (regular members): 1,000,000 yen
Annual membership fee: determined by calculating method set forth in JSDA rules

4) Type II Financial Instruments Firms Association

https://www.t2fifa.or.jp/teikan/index.html    (click （英訳） for English)

Type II Financial Instruments Firms Association is a self-regulatory organization aiming to promote the healthy development of fund selling business such as anonymous association contracts and trust beneficiary trading business.   

Financial instruments operators of Type II Financial Instruments Businesses (securities for a lower liquidity such as beneficial interests in trusts and interests in collective investment schemes) are eligible for membership.

What do they do?

Type II Financial Instruments Firms Association engages in:
- Providing guidance and recommendations on legal compliance
- Protecting investors
- Compliance investigation
- Complaint Consultation
- Establishing rules
- Improving member qualification
- Conducting surveys/research (submitting proposals to the government according to the result, when necessary)
- Educational activities
- Communication among members
- Communication with related organizations
- Supporting efforts to eliminate antisocial forces

Number of members (as of Nov. 4, 2020)

561 companies

Membership Fee

Enrollment fee: 1,000,000 yen
Membership fee: 500,000 yen

Each of these four major industry associations has their own regulations based on laws and other factors.  If you are thinking of setting up a business base in Japan, do not forget to hire a compliance personnel.

< Ryo Fukao >