Japan: Tightened Regulations On Managers Of Funds Marketed To Japanese Investors Will Come Into Force Shortly

Last Updated: 1 March 2016
Article by Yuki Yoshida

The 2015 amendments (the "Amendments") to the Financial Instruments and Exchange Act of Japan (the "FIEA," and the FIEA amended by the Amendments, the "Amended FIEA"), which will impose far-tighter regulations on managers of funds marketed to Japanese investors, will come into force as of March 1, 2016. This Commentary outlines key futures of these new regulations under the Amended FIEA, together with their backgrounds.


Before going into details of the Amendments, we set forth below the current regulations applicable to fund managers under the FIEA.

Prior to the enactment of the FIEA in 2006, investments in partnership-type funds used to be unregulated under the old Japanese securities law, but the FIEA introduced a broad cross-sectoral regulatory regime for a wide range of financial products. In particular, investments in partnership-type funds are categorized as a regulated "collective investment scheme." A general partner ("GP") of this type of fund who (i) marketed the collective investment scheme to Japanese investors or (ii) marketed it in Japan (regardless of whether the investors are Japanese residents or not)1 is required to be registered as an operator of a Type II Financial Instruments Business (for solicitation of the collective investment scheme (so-called "self-offering")) and an Investment Management Business (for management of funds collected through the collective investment scheme (so-called "self-management")).2

However, for such registration, the applicant must meet certain requirements (including the minimum stated capital and appropriate human resources, etc.), which a fund GP could not usually meet, given the GP is usually a special purpose company. Therefore, in order to avoid excess regulations that may harm an innovation in the financial markets, the FIEA also introduced an exemption from such registration requirements for funds aimed mainly for professionals. This is the "Specially Permitted Business for Qualified Institutional Investors" (tekikaku-kikan-toshika-to-tokurei-gyomu) (the "Special Business").

More concretely, if a fund meets the following conditions,3 the fund GP is exempted from the registration requirements as described above, although the GP is required to file only a notification for the Special Business (the "Notification") with the regulators in advance (Article 63 of the FIEA)

  • The fund has at least one Qualified Institutional Investor (a "QII")4 at all times; and
  • The number of investors who are not QII ("Non-QIIs") in the fund is 49 or less.

The exemption is quite commonly used by many fund managers, and according to the FSA, more than 3,000 entities have filed the Notification so far.

Although the Special Business was originally intended for funds aimed at professionals—given its lighter regulations (compared to other businesses that require registration under the FIEA) and the fact that it is permitted to solicit up to 49 Non-QIIs—there were certain incidents where some funds misused the exemption and caused losses to "layman" investors. In response, the Amendments were passed by the Japanese Diet in May 2015 and will come into force as of March 1, 2016.

Outline of New Regulations

Limitation on Non-QIIs Who May Invest in Funds. Before the Amendments, there was no limitation on the nature of Non-QIIs who may invest in a fund, and thus any person (up to 49 persons) might invest in the fund as long as the conditions for the Special Business as described above were met.

Under the Amended FIEA, in order to reinforce the principle that the Special Business is intended for professional funds, besides QIIs, only Non-QIIs with certain limited natures (the "Permitted Non-QIIs") will be permitted to invest in a fund. The Permitted Non-QIIs include, without limitation:

  • A listed company;
  • A Japanese company with the stated capital or net assets in the amount of JPY50 million or more;
  • A foreign company;
  • A pension fund holding securities or other investment assets in the amount of JPY10 billion or more;
  • An individual who holds securities or other investment assets in the amount of JPY100 million or more and opened his/her securities account more than a year ago; and
  • A person/entity having a close relationship with a fund GP (such as a parent, subsidiary, sister company, asset manager, or investment advisor of the GP, and officers and employees thereof).

Whether or not an investor will fall into any of the permitted Non-QII categories must be judged at the time of the marketing of the fund to such investor. According to the FSA, as long as the investor falls into such category at that time, the fund will not lose its status for the Special Business even if such investor later ceases to fall into that category.5

In addition to the above, if a fund is categorized as a "venture capital fund,"6 certain types of persons who are deemed to have knowledge and experience in investments (such as an incumbent or former officer of a listed company, etc.) will also be permitted to invest in the fund.

An operator who already filed a Notification prior to the enforcement of the Amendments (the "Existing Operator") may continue to manage the fund even if the fund has an investor that is not a Permitted Non-QII. However, the Existing Operator will be prohibited from soliciting a new fund to such investor and only will be allowed to solicit the same to QIIs and Permitted Non-QIIs.

Grounds for Disqualification. The Amended FIEA introduces a concept of grounds for disqualification for an operator of the Special Business.

Most notably, a foreign fund manager will be required to appoint a representative located in Japan, who will be a main contact for correspondences with the authorities. According to the FSA's Responses, this does not necessarily mean that the fund manager is required to establish an office in Japan, but it may designate an outside lawyer or certified public account located in Japan as the representative.

In addition, if regulatory authorities on financial instruments in the home jurisdiction of a foreign fund manager have not made any assurance for reciprocity to the FSA,7 such foreign fund manager will be disqualified for the Special Business.

The requirement of reciprocity in the preceding paragraph will not apply to an Existing Operator. On the other hand, the requirement of the representative in Japan in the second preceding paragraph will apply to the Existing Operator as well, although the Existing Operator will have a six-month grace period after the enforcement of the Amendments.

Expansion of Conduct Control, Etc. Before the Amendments, an operator of the Special Business was subject to quite limited regulations on conduct control. Only the prohibition on false statements and loss compensation was applicable to the operator. However, under the Amended FIEA, a wide range of regulations (almost equivalent to those to registered operators under the FIEA) will be applicable to an operator of the Special Business. Such regulations include: fiduciary duties to clients; regulations on advertisement; requirement to deliver certain documents to clients before, and at the time of, entering into a contract with them; prohibition on self-dealings; and segregation of funds.8

In addition, under the Amended FIEA, an operator of the Special Business will be required to prepare and maintain certain books and records on the Special Business in accordance with the FIEA. In the FSA's Responses, it noted that, as long as the books and records contain items required under the FIEA, the name or formality of the books and records does not matter. Accordingly, we assume that, as long as a fund manager properly prepares and maintains its books and records in accordance with the laws and regulations of the home jurisdiction, such books and records may also satisfy the requirements under the FIEA. However, each fund manager, with the advice of Japanese legal counsel, should carefully review and confirm whether that is the case.

Further, under the Amended FIEA, an operator of the Special Business will be required to annually file the business report (including the details of funds operated by the operator) to the authorities within three months of the end of each fiscal year.9 The operator is also required to make available to the public an excerpt from the business report by means of the internet or displaying at the office in Japan. Such publicly available excerpt does not contain the details of the fund but contains certain basic information on the funds (such as the name of the funds, the number of investors, the amount invested by QIIs, etc.).

The regulations described in the three preceding paragraphs will apply to the Existing Operator as well without any grace period. Thus, for example, the Existing Operator will be required to file a business report for the business year starting on or after March 1, 2016, within three months after the end of such business year.

Expansion on Contents in Notification. As described above, an operator of the Special Business is required to file a Notification with the regulators before starting the Special Business. The Notification may be in English, and it must contain the name and address of the operator, names of the officers, the name of at least one QII invested in each fund operated by the operator, etc.

Under the Amended FIEA, in addition to the matters described above, the names of all the QIIs invested in each fund operated by the operator must also be included in the Notification.10 In the case of change in any matters in the Notification, the operator is required to file an amendment to the Notification. Thus, this may impose burdensome obligations to, in particular, the manager of open-ended funds because, in every change in investors who are QIIs, the manager is required to file an amendment.

The Existing Operator will also be required to refile the Notification with the information newly required under the Amendments, together with certain attachments (such as affidavits and resumes of the officers, etc.), within six months after the enforcement thereof (i.e., by the end of August 2016).

Enhancement on Enforcement Powers. The Amendments will enhance enforcement powers by authorities, including the introduction of certain administrative sanctions to an operator of the Special Business (such as a cease and desist order) and the strengthening of criminal penalties for non-filing of a Notification or filing of a false Notification.11


As outlined above, the Amendments will significantly tighten regulations on managers of funds marketed to Japanese investors. Thus, it becomes far more important for fund managers who market or plan to market their funds to Japanese investors to take necessary steps or actions to ensure their compliance with the regulations.


1 According to the Financial Services Agency of Japan (the "FSA"), although it depends on actual facts and circumstances, it is of the view that, in principle, if funds are only marketed outside Japan to foreign investors who are not Japanese residents, the FIEA is not applicable.

2 Funds formed as corporations or trusts are regulated differently, and this Commentary does not cover regulations on corporation- or trust-type funds.

3 For solicitation of fund interests (but not for management of funds), another condition that the fund interests are subject to certain transfer restrictions needs to be met as well.

4 The QIIs under the FIEA include, without limitation, securities firms, banks, and insurance companies.

5 The FSA's responses to public comments to draft enforcement orders and ordinances for the Amended FIEA (the "FSA's Responses") (available only in Japanese).

6 To be categorized as a venture capital fund, the fund needs to meet, among others, the following requirements: (i) more than 80 percent of its investments is to shares or other equity interests in unlisted companies; (ii) the fund does not incur any borrowings and does not provide any guarantees (with some exceptions); and (iii) investors do not have a right to redeem the fund interests.

7 The FSA is a signatory to the Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information (the "MMoU") of the International Organization of Securities Commissions (IOSCO"). Thus, if the authorities in the home jurisdiction of a foreign fund manager are also signatories to the MMoU, such condition will be met.

8 As with regulations to registered operators, certain regulations may be lightened if clients are "specified investors" (tokutei-toshika) under the FIEA.

9 The business report may be in English. Also, in case of a foreign entity, it may apply for an approval for the extension of the due date of the business report.

10 Under the Amended FIEA, certain information contained in the Notification will be disclosed to the public. However, such information to be disclosed does not include the names of the QIIs.

11 Under the Amended FIEA, an operator who failed to file the Notification or who filed a false Notification may be subject to an imprisonment up to five years and/or fines up to JPY5 million.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions