Investment Japan (IJ) is pleased to introduce a new guidance column by Japan Asset Management Platform Group (JAMP). JAMP Financial Solutions provides compliance support to Financial Instruments Business Operators (FIBOs) and those who plan to register as FIBOs in Japan. Below, we offer some pointers about setting up a financial instruments business in Japan as the market is expanding into new areas. FIBOs include Type I and II FIBOs, invest management, and invest advisory, etc. Registration with Financial Services Agency (FSA) means obtaining a license to operate such businesses in Japan.
Once you have registered as a FIBO in Japan, or even if you’re considering such registration (licenses), you will face a couple of questions: 1) does the business fall within the scope of the Statement of Operating Procedures (Gyomu hoho-sho), the document filed with the FSA describing in detail the business your company intends to operate? and 2) What sort of licenses will be need under the Financial Instruments and Exchange Act (FIEA)? It is crucial to determine which type of the business you intend to operate and how you will develop it in Japan. By doing so, you will avoid the pitfalls of selling financial instruments or products under wrong licenses as well as unnecessary over-licensing.
While old Securities and Exchange Law categorized businesses now known as FIBOs as "securities companies", the FIEA classifies businesses more precisely defined according to their actual practices, i.e., Type I Financial Instruments Business Operator and Type II Financial Instruments Business Operator, according to the types of securities handled. The FIEA incorporated the former Investment Advisers Business Law and portions of former Securities Investment and Trusts Law to include new business categories such as “investment management” and “investment advisory and agency”. Other business types followed, including "Specially Permitted Business for Qualified Institutional Investors”, “Investment Management for Qualified Investors”, “Financial Instruments Intermediary Business” and “High Frequency Trading Business Operator”. Beginning May 1, 2020, the newly revised FIEA designated “trading of cryptographic asset derivatives and electronic record transfer rights” (a/k/a STO or Security Token Offering) as a Type I Financial Instruments Business, in order to regulate transactions involving them. The FIEA’s scope has expanded so rapidly over the past several years, that anyone launching new financial instrument business in Japan would be confused about which registration and license is required. Here are the four principal types of financial instruments businesses:
Once you know the specific instruments, services, or products you will engage with, the licensing requirements will become clearer. For example, if you are a foreign asset management firm wishing to solicit and sell your own funds directly to Japanese investors, you are required to establish a joint stock company (kabushiki kaisha or KK) in Japan and register as a Type I FIBO. If you solicit under a management contract from a Japanese pension fund and the like. using the same strategies as your would for your own funds, you must establish KK in Japan and register as Investment Management Business.
Registering a FIBO can represent significant hurdle. JAMP can assist in identifying or offering alternate business models with less exacting requirements for entering the Japanese market. In cooperation with the Tokyo Metropolitan Government (TMG) and its efforts to create an international financial hub, we offer consultation to domestic and overseas financial institutions who wish to register a financial instruments businesses in Japan.
About JAMP: https://www.jamplatform.com/english/