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Japan Introduces Temporary Exemption for Foreign Fund Managers

The Japanese Financial Services Agency released a new regulation allowing foreign fund managers and securities brokers to transfer their operations to Japan temporarily and without registration in certain emergency situations. The regulation targets managers and brokers seeking to move their operations following the introduction of Hong Kong's new national security law.

On July 22, 2020, Japan's Financial Services Agency ("FSA") implemented an amendment to a Cabinet Order regarding the Financial Instruments and Exchange Act ("FIEA"). The amendment introduces a temporary exemption from registration requirements under the FIEA for foreign fund managers and securities brokers in certain emergency situations. Managers and brokers who face difficulties while attempting to continue operations overseas can operate in Japan following expedited approval from the FSA. This amendment was adopted by the Japanese government primarily to encourage managers and brokers affected by Hong Kong's new national security law to relocate to the Tokyo financial market.

The FSA has released Q&As indicating that it is likely to approve an application within three business days of receipt, a significant reduction from the standard fund manager registration period of six months or more. In order to further shorten the three‑day review period, the FSA will offer a pre-consultation to managers and brokers who have not yet filed a formal application but anticipate an emergency situation.

The FSA's temporary exemption would last for a period of three months, but if an emergency situation persisted at the end of the three‑month period, the applicant would be permitted to apply for an expedited renewal of the exemption. However, the FSA will not grant (and will revoke) approval of an exemption if it finds that the applicant does not intend a temporary transfer of operations in response to an emergency, but rather seeks to exploit the amendment to circumvent the standard registration process required under the FIEA. This amendment will not impose any additional requirement on foreign fund managers with registered affiliates in Japan in connection with temporary group-supporting activities or visiting that were allowed prior to the amendment.

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