A business operator wishing to engage in the Financial Instruments Business is, in principle, required under the FIEA to be registered as a financial instruments business operator (FIBO) beforehand. To successfully register as a FIBO, a business operator has to meet certain conditions, including but not limited to:
- having a business office and representative in Japan (inapplicable to the IAA Business);
- meeting minimum capital and net worth requirements (specifically, at least ¥50 million (or more, in certain cases) in respect of Type I Business, at least ¥10 million in respect of Type II Business, and ¥50 million (or less, where certain conditions apply) in respect of DIM Business, but inapplicable to IAA Business); and
- meeting certain internal system requirements, such as having an appropriate organisational structure in place.
Applications for FIBO registration have to be filed with the relevant LFB. In practice, applicants are generally required to consult with the relevant LFB to discuss the details of their proposed businesses, the appropriateness of their organisational structure and internal business rules, and other matters, and to obtain informal regulatory approval for filing before submitting a formal application. Assuming this informal consultation process (which may take a few months) is observed, two months will typically be required from the date of submission of a formal application to the date of completion of registration, unless amendments to the application forms or supporting documents are necessary, in which case more time would be needed.
Exemption from registration requirements
Under the FIEA, business operators who satisfy certain requirements are permitted to engage in certain Financial Instruments Businesses without registration as a FIBO. The main registration exemptions are discussed below.
Article 63 business exemption
Registration exemptions are available under article 63 of the FIEA to general partners of partnerships with:
- at least one qualified institutional investor (such as a FIBO engaging in the Type I Business or DIM Business, a bank, or an insurance company) (QII); and
- less than 50 eligible non-QII investors (which are limited to persons such as the general partner itself, a parent or a subsidiary of the general partner, officers and employees of the general partner, its parent or subsidiary, and certain high net worth individuals).
Specifically, such general partners may:
- solicit Japan residents for investments in interests in their partnerships without registration as a Type II Business; and
- manage the assets of their partnerships for investors resident in Japan without registration as a DIM Business (the Article 63 Business Exemption).
However, an Article 63 Notification has to be filed with the relevant LFB before commencement of any investment solicitation activities.
De minimis exemption
A general partner of a partnership established under the laws of a foreign jurisdiction is permitted to manage the assets of such partnership, without registration as a DIM Business or filing an Article 63 Notification, if all of the following conditions are met:
- all the Japan-resident investors who have directly and indirectly invested in the partnership are QIIs;
- the partnership has less than 10 Japan-resident investors; and
- the total partnership contributions from such Japan-resident investors is less than one-third of the total contributions from all investors in such partnership.
Foreign securities firm exemption
A foreign entity licensed to engage in the securities business in its home jurisdiction is permitted, without registration as a Type I or Type II Business, to engage in certain securities-related activities, provided such activities are carried on from offices outside Japan and with limited categories of counterparties (the Foreign Securities Firm Exemption). This is discussed in further detail in question 21, below.
Foreign investment adviser and manager exemption
A foreign entity licensed to engage in a non-discretionary investment advisory business or a discretionary investment management business in its home jurisdiction is permitted, without registration as an IAA Business or DIM Business, to provide a FIBO engaging in the DIM Business with non-discretionary investment advisory services or discretionary investment management services.
However, such foreign investment advisers and managers are still prohibited from providing non-discretionary investment advisory services and discretionary investment management services to FIBOs registered to engage in the IAA Business.
Non-securities related OTC derivatives exemption
A person will not be deemed to be engaging in the Financial Instruments Business merely by acting as a principal or providing intermediation, brokerage or proxy services in non-securities-related OTC derivative transactions (except in cases where such derivative transactions are subject to certain statutory requirements), where the counterparties are limited to:
- Type I Business FIBOs;
- financial institution registered to conduct securities-related business under the FIEA;
- stock corporations with paid-up capital of at least ¥1 billion; and
- an overseas equivalent of any of the above.
Registration as sales representative
Under the FIEA, the officers and employees of a FIBO who engage in marketing activities such as the sale and purchase of Type I Securities, or dealing in the public offering, private placement or secondary distribution of Type I Securities, are required to be registered as a sales representative with the Japan Securities Dealers Association (JSDA), a self-regulatory body delegated with the authority to handle registration affairs by the JFSA. Persons seeking to be registered as a sales representative are required to pass a qualification examination administered by the JSDA.
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