In its ongoing guidance column for financial instruments business operators (FIBOs) and prospective FIBOs, Japan Asset Management Platform Group's (JAMP) examines the requirements for establishing Specially Permitted Business for Foreign Investors, etc. and Specially Permitted Business during Transition Period.

On May 19, 2021, Japan's 204th National Diet enacted the "Act for Partial Amendment of the Banking Act, etc. for the Purpose of Strengthening Financial Functions and Ensuring Financial Stability in Response to Changes in Socio-Economic Circumstances Due to Infections with Novel Coronavirus, etc.”  Following a period of public comment, the Act went into effect on November 22.

By establishing a temporary operations system for overseas investors, the Act, provides an important complement to the Financial Instruments and Exchange Act (FIEA).  The FIEA allows domestic and foreign entities to engage in fund management, primarily managing overseas funds, with a notification rather than a registration (FIEA, Article 63-8 to 63-15).  The Act similarly allows foreign investment management companies to engage in investment management for foreign investors in Japan with a notification and no registration for maximum of 5 years (Article 3-3 of the Supplementary Provisions of the FIEA).

Specially Permitted Business for Foreign Investors, etc.

< Permitted Activity >

  1. Exercise of rights based on a partnership agreement as set forth in Article 2 (2)(v) of the Act and operation of rights based on a similar partnership agreement under foreign laws and regulations (Article 2 (2)(vi))
  2. Offering or private placement of the rights referred to in 1. above (limited to overseas investors, etc.)

< Qualified Foreign Investor >

  1. A foreign corporation or an individual with a domicile in a foreign country who meets the requirements specified by Cabinet Office Ordinance
  2. Qualified institutional investors and specified investors
  3. Subsidiaries, managers, and advisors of the concerned parties

Specially Permitted Business during Transition Period

< Permitted Activity >

  1. Management based on discretionary investment contracts
  2. Management of beneficiary securities of foreign investment trusts
  3. Exercise of rights under foreign partnership agreements
  4. Handling of subscriptions and private placements to overseas investors, etc. in relation to 1 - 3 above

< Qualified Foreign Investor >

  1. A foreign corporation or an individual having a domicile in a foreign country
  2. Parent company, officers and employees of the relevant investment manager
  3. Investment managers


These new systems were established in response to the following requests:

ー The existing system does not necessarily envisage foreign businesses that primarily manage only foreign funds.  Focusing on the fact that investors (clients) of funds are mainly foreign corporations or individuals residing abroad, can we consider a system that allows such fund management businesses to operate in Japan with simplified entry procedures as a new type of business?

ー Is it possible to allow foreign businesses that invest in only foreign funds to enter the Japanese market for a certain period, taking into account their track record and the fact that they have been supervised by foreign authorities before obtaining registration in Japan?

The systems are expected to attract active participation from both inside and outside Japan.