Introduction

In June 2023, the "Basic Policy on Economic and Fiscal Management and Reform 2023" was adopted by the Cabinet, seeking to have Japan be "a nation facilitating asset management." On August 29, 2023, the Financial Services Agency (the “FSA”) published "The JFSA Strategic Priorities July 2023-June 2024" (the “Strategic Priorities”), which includes initiatives to promote asset management business, such as:

• enhancing the asset management capabilities and governance of asset management companies
• promoting stewardship activities
• supporting and expanding competition through assistance for new entrants
• diversifying investment targets
• strengthening information dissemination and creating an environment towards realizing an international financial center

On September 21, 2023, Prime Minister Fumio Kishida, in his speech at the Economic Club of New York, explained the following measures that will be taken in order to realize the goal of “a nation facilitating asset management”:

• rectifying Japan's unique business practices and removing barriers to entry
• introducing a new program to assist new business entrants
• promoting deregulation to enable asset management firms to outsource their back-office operations
• establishing special business zones tailored specifically for the asset management business where administrative procedures can be completed solely in English

The Strategic Priorities state that a specific policy plan for becoming a nation facilitating asset management will be formulated within the year 2023. Under the Council of New Form of Capitalism Realization, a subcommittee on a nation facilitating asset management has been convened, and the Financial System Council's “Task Force on Asset Management” began meeting in October 2023.

Prior to these meetings, as part of strengthening Japan's role as an international financial center, the FSA and local finance bureaus established the “Financial Market Entry Office” (the “FMEO”) in January 2021. The FMEO handles pre-application consultations, registration procedures, and post-registration supervision in English for newly entering foreign asset management companies.

○Financial Services Agency, “The Financial Market Entry Office”

In addition to the FMEO initiatives, the Japanese government and local governments have been implementing measures such as model projects and grants for foreign financial business operators considering establishing a base in Japan.

○Financial Services Agency, “Financial Start-Up Support Program”

○Tokyo Metropolitan Government, “Subsidy for the establishment of an asset management business” (Japanese)

○Osaka Prefectural Government, “Subsidy for the establishment of foreign companies in the financial sector, etc.” (Japanese)

○Fukuoka Prefectural Government, ”Subsidy for the establishment of financial institutions, etc.” (Japanese)

This article introduces the overview of the registration process available in English for foreign asset management companies and other foreign business operators when entering the Investment Management Business, the Investment Advisory and Agency Business, the Type-II Financial Instruments Business related to asset management operations (such as selling funds managed by the company itself), and the Type-I Financial Instruments Business (such as selling beneficiary certificates of foreign investment trusts and foreign investment securities), as well as future initiatives towards becoming a nation facilitating asset management.

Registration Procedures and Post-Registration Supervision available in English

For foreign asset management companies and other foreign business operators, registration procedures can be conducted in English if they meet conditions (1) and (2) set forth below. Supervision of these firms that have completed registration in English will be handled by the FMEO in English, and inspections also will be conducted in English. This is not limited to foreign asset management companies newly entering Japan, but also applies to those already registered for the financial instruments business (including those which had completed their registration process in Japanese) and to wish to make a change of registration.

■Condition (1): Attributes of the Applicant

The applicant must be within one of the three following categories:

(i) Applicant which is engaged in the same type of business in a foreign country as it intends to conduct in Japan
(ii) Parent companies, subsidiaries, or affiliated companies of entities described in (i)
(iii) A person who was an officer or employee of an entity described in (i), or a company of which a person who was an officer or employee of an entity described in (i) is an officer or senior employee

■Condition (2): Types of Business to Be Conducted

Types of Financial Instruments Business	Types of Business
Type-I Financial Instruments Business	Business conducted for professional investors, dealing only in certain securities, such as beneficiary certificates of foreign investment trusts and foreign investment securities
Type-II Financial Instruments Business	Business relevant to the asset management business in any of the following (i) to (iii): (i) Selling interests in investment trusts or funds established by the asset management company itself. (ii) Selling interests in partnership-type funds (collective investment schemes) managed by one of its affiliates to professional investors. (iii) So-called Deemed Type-II Financial Instruments Business conducted by Asset Management Companies of Investment Corporations or operators of Investment Management Business for Qualified Investors.
Investment Management Business	No limitation
Investment Advisory and Agency Business	No limitation

As of the end of September 2023, there have been 27 registrations (including duplicates due to change of original registration) where the registration procedures (or change of original registration) and notification have been completed in English.

Type of Business	Number of Registrations
Type-I Financial Instruments Business	2
Type-II Financial Instruments Business	4
Investment Management Business	2
Investment Management Business for Qualified Investors	2
Investment Advisory and Agency Business	17
Specially Permitted Business for Foreign Investors, etc.	1

○Financial Services Agency, “List of Companies that Registered or Submitted Notifications in English”

There are four main types of Financial Instruments Businesses: “Type-I Financial Instruments Business,” “Type-II Financial Instruments Business,” “Investment Management Business,” and “Investment Advisory and Agency Business.”

To solicit or sell securities, having a registration for the Type-I Financial Instruments Business or the Type-II Financial Instruments Business is required, depending on the type of securities being transacted.

To manage customer assets or funds, having a registration for the Investment Management Business generally is required. However, the notification of  Special Business for Qualified Institutional Investors and Special Business for Foreign Investors are also options. In the case of Investment Management Business targeting “qualified investors”, and with a scale of managed assets of less than 20 billion yen (referred to as the “Investment Management Business for Qualified Investors”), there are relaxed entry regulations as compared to the regular Investment Management Business, such as:

• a board of directors is not required
• minimum capital requirement of 10 million yen
• some personnel requirements are relaxed

One significant relaxation in personnel requirements is that outsourcing of compliance operations is allowed (in contrast, a regular Investment Management Business is required to have a compliance division/person in charge on site in Japan).

In addition, for those conducting the Investment Management Business for Qualified Investors, there is a special registration exemption which allows these firms to solicit beneficiary certificates of investment trusts, etc., by means of private placements as a Type-II Financial Instruments Business (Deemed Type II Financial Instruments Business), which would normally require a Type-I Financial Instruments Business registration.

For business operators which do not delegate “final investment decisions” and “investment authority” and provide advice based on an analysis of the value of securities or make “investment decisions based on an analysis of value of Financial Instruments”, registration for the Investment Advisory and Agency Business is required. The regulations for this status are more relaxed than those applied to the Investment Management Businesses. The number of overseas firms entering the Investment Advisory and Agency Business is increasing, with one of their roles being to research and analyze Japanese companies locally and provide investment advice to their overseas affiliated investment management or investment advisory companies. Additionally, connecting Japanese institutional investors with overseas affiliated companies to mediate or represent such affiliates in entering into discretionary investment contracts or investment advisory contracts with such investors also falls under the scope of the Investment Advisory and Agency Business.

Future Initiatives Towards Becoming "a Nation Facilitating Asset Management"

The Japanese Government, in its efforts to promote initiatives towards becoming a nation facilitating asset management, states that it will fundamentally reform its approach to the asset management business by improving governance and systems of asset management companies and asset owners, substantiating stewardship activities, and supporting the entry of and promoting competition among domestic and foreign asset management companies. Specific policy plans including these initiatives are scheduled to be issued within 2023 (*1).

For example, discussions are underway to relax the registration requirements for the Investment Management Business, such as allowing the outsourcing of middle- and back-office operations to appropriately qualified firms and easing the entry requirements (capital and system establishment, etc.) for the Investment Management Business (*2). This is in response to the presence of major firms in Singapore and Europe that accept outsourced compliance operations for asset management companies, the difficulty for new foreign asset management companies in engaging local personnel with knowledge and experience in compliance matters and who can communicate in English, and the heavy burden on middle- and back-office operations even for major asset management companies. Discussions also are being held on subjecting outsourcing firms to regulatory supervision, including entry regulation and conduct regulation (duty of care, etc.). Even when outsourcing can be utilized, it is necessary for the outsourcing party to manage the outsourced firm, and it seems necessary to clarify the scope of authority and responsibility between the outsourcing party and the outsourced firm.

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*1 The Government of Japan, Basic Policy on Economic and Fiscal Management and Reform 2023 An Accelerating New Form of Capitalism ～Expanding Investments for the Future and Realizing Structural Wage Increases～, 16 June 2023
*2 Financial System Council, Task Force on Asset Management (2nd meeting) materials (Japanese)