Japan's Financial Services Agency to Introduce New Exemption for Foreign Fund Managers
The Working Group Committee of Japan's Financial Services Agency has recommended a new exemption system for fund managers who manage overseas investors' funds, with fewer restrictions on eligible investors.
On December 23, 2020, the Working Group Committee of the Financial Services Agency of Japan ("FSA") released a report recommending a new exemption system be enacted that, if adopted, would simplify regulatory compliance for foreign managers who enter the Japanese market.
There are currently three different qualification systems for investment managers under the Financial Instruments and Exchange Act ("FIEA"):
- A full registration as a discretionary investment manager;
- A registration for managing the funds of professional investors only; and
- Qualified Institutional Investor ("QII") special exempt business filing ("Article 63 Notification"). Article 63 Notification is the least burdensome, and many fund managers rely on it as an exemption from registration under the FIEA. However, a manager relying on Article 63 Notification must have at least one QII investor and no more than 49 non-QII investors.
The committee's proposal would create another exemption, which is similar to Article 63 Notification but with fewer restrictions on eligible investors. In order for a fund manager to qualify for this new exemption, a majority of the funds it manages must be raised from overseas (i.e., non-Japanese) investors.
A qualifying investment manager would be permitted to have an unlimited number of investors and, unlike Article 63 Notification, would not be required to have any QII investors. Moreover, the committee's proposal would allow qualifying managers to solicit funds directly from Japanese investors without relying on a broker or broker's license (which is similar to the solicitation exemption under Article 63 Notification).
Once enacted, this new exemption will provide foreign investment managers a more flexible option than the existing Article 63 Notification. This proposal is part of the FSA's initiative to attract more foreign managers to the Japanese market. It has been reported that the new legislation could be proposed as early as during the current Diet session.
Jones Day publications should not be construed as legal advice on any specific facts or circumstances. The contents are intended for general information purposes only and may not be quoted or referred to in any other publication or proceeding without the prior written consent of the Firm, to be given or withheld at our discretion. To request reprint permission for any of our publications, please use our “Contact Us” form, which can be found on our website at www.jonesday.com. The mailing of this publication is not intended to create, and receipt of it does not constitute, an attorney-client relationship. The views set forth herein are the personal views of the authors and do not necessarily reflect those of the Firm.