Regulation and Licenses
There are many areas in the financial business, and there are countless relevant laws and regulations. In addition, each industry, such as banking, securities, and insurance, has its regulations and practices, subject to complex regulations. Therefore, it is not easy to organize a financial business.
In the first place, We think that many businesses do not know what the business they are trying to do is classified by regulation.
After categorizing the financial business from a bird’s-eye view, we have summarized the outline of each business format classified by regulation. Next, please refer to the respective links for what is required for specific licensing / registration/notification and what requirements are required.
Classification of Services
Q1 : I want to sell investment products (financial instruments sales, renewable energy, investment projects, crypto-assets, etc.)
Q2 : I want to manage a fund (financial product, real estate, commodities, alternative funds, etc.)
Q3 : I want to provide investment services (Invest management, Investment advice, Private Banking, etc.)
Q4 : I want to organize a platform business (stock exchange, crowdfunding, system trading, etc.)
Q5 : I want to lend/custody money (banking / lending / wallet)
Q1 : I want to sell investment products
To sell “ready-made” investment products rather than “Managing” the fund from investors, whether the sale of investment trusts or funds managed by other companies in Japan or overseas, such as solar power plants, business investment, newly issued tokens, etc. We believe that the investment products to sell may vary.
In terms of regulation, the required license varies depending on the content and legal nature of the investment products. Thus, even if you want to sell a “foreign investment project,” the regulations apply entirely differently depending on the content and legal nature of the project.
A typical scheme for Financial Instruments Businesses
For traditional securities such as stocks, corporate bonds, and investment trusts, the broker corresponds to the Type I Financial Instruments Business (securities-related business), the Financial Instruments Intermediary Business or Financial Service Intermediary Business. The Type I Financial Instruments Business is a security company.
On the other hand, collective investment schemes (partnership) and small-lot investment projects of tangible assets are usually sold in the form of silent partnerships. The offering and brokerage of such a collective investment scheme typically fall under the Type II Financial Instruments Business such as small-lot investment in solar power plants, ship and aircraft leasing business, investment in overseas resort projects, investment in crypt currency, etc.
Besides, real estate agents need to mediate real estate, which is a trust beneficiary right. Registration for the Type II Financial Instruments Business is required for such cases as well. However, the intermediary service of trust beneficiary rights is not so different from the ordinary Real Estate Broker service. Since it is a variant of real estate sales brokerage, REIT-like real estate funds cannot be formed in the Type II Financial Instruments Business.
Sale of Foreign fund
I often hear stories about wanting to sell foreign funds domestically. However, foreign funds have a wide variety of regulations subject to its scheme.
Among foreign funds, investment trusts, and investment corporations (unit trusts, etc.), the brokerage business is the above-mentioned the Type I Financial Instruments Business (securities-related business) or the Financial Instruments Intermediary Business or Financial Service Intermediary Business registration is required. Therefore, it needs the brokerage service of a domestic securities company.
If a foreign company that manages investment trusts wants to sell investment trusts directly, direct sales, and brokerage of foreign collective investment scheme funds (partnerships, etc.), it must register the Type II Financial Instruments Business.
Other Financial Instruments
In recent years, in addition to the traditional financial products mentioned above, there has been an increasing need to sell so-called crypto-assets (virtual currency) such as tokens using blockchain technology in Japan. In this case, utility tokens such as Bitcoin must register the Crypto-asset Exchange Service (the Virtual Currency Exchange Service). In addition, registration of the Type I Financial Instruments Business is required to sell security tokens with revenue sharing.
Another option is to repackage these products instead of selling them directly to investors (first invest in your fund and then reinvest). In that case, the fund will be formed either by registering as a Type II Financial Instruments Business or by notifying the Specially Permitted Businesses for Qualified Institutional Investors, etc. (SPBQII) or the Specially Permitted Business for Foreign Investors, etc. Besides, when reinvesting products are mainly securities or derivatives, it is also necessary to register as the Investment Management Business. Alternatively, instead of forming a fund, you can repackage it with corporate bonds.
Q2 : I want to manage a fund
There is a need to raise funds and “manage” them in specific financial products or businesses rather than selling “ready-made” financial products.
If you want to invest mainly in securities or derivative transactions such as stocks, bonds, financial futures, etc., you need to register as the Investment Management Business in principle. Also, if you want to invest in real estate converted into a trust beneficiary right, you need the Investment Management Business (Specified the Investment Management Business Related to Real Property) because the trust beneficiary right is securities.
On the other hand, when investing in tangible assets such as solar power plants and restaurants, or the actual business portfolio, no special license is required for the “fund management” itself. Therefore, when the offering of the fund Type II Financial Instruments Business Operator registration is required, but if you are entrusted with solicitation to a Type II Financial Instruments Business Operator, you don’t need any registration in these cases.
In terms of the Investment Management Business (self-management) and the Type II Financial Instruments Business (self-recruitment), if you sell the financial instruments only for professionals or semi-professionals to the other party in the Specially Permitted Businesses for Qualified Institutional Investors, etc. (SPBQII), you can start the business with the registration.
On the other hand, if you want to offer and manage in non-trusted real estate fund, you need a Specified Joint Real Estate Ventures Permission. In addition, if your fund want to invest in commodity futures, you need a Commodities investment advisors license .On the other hand, you need a Specified Joint Real Estate Ventures Permission to offer and manage non-trusted real estate funds. In addition, if you want to invest in commodity futures, you need a Commodity Trading advisor’s license.
Q3 : I want to provide investment services
There are also business style that specialize in “services” rather than “sales,” such as acting as an asset manager, giving advice, or distributing information for investors.
It is a discretionary investment management business when trading securities or derivative transactions such as stocks, bonds, financial futures, etc., on behalf of investors. You will need to register for an Investment Management Business.
In addition, it is necessary to register as the Investment Advisory and Agency Business to distribute investment information on securities values or advise investors on securities or derivative transactions for a fee.
Regarding the investment advice service related to real estate, it is possible to register as a real estate investment advisor, but not compulsory.
Q4 : I want to organize a platform business
With the excitement of so-called FINTECH, you want to organize a Platform Business to provide trading infrastructure for financial instruments rather than selling specific products or services with your knowledge and experience.
The typical model is the exchange or trading system. The so-called online securities for traditional products such as stocks and corporate bonds fall under the Type I Financial Instruments Business (securities-related business). In addition, it would apply to the PTS business of the Type I Financial Instruments Business with additional special approval if you create a private exchange.
If the trading product is derivative trading such as FX, CFD, binary options, etc., it falls under the Type I Financial Instruments Business (financial futures trading). However, some exchange-traded derivative trading businesses (Click 365) will be registered as the Type II Financial Instruments Businesses. For example, in commodity CFD trading, it will be a commodity futures trading business, not the Type I Financial Instrument Business.
On the other hand, crowdfunding and social lending correspond to the Type II Financial Instruments Business. Therefore, especially for investment-type crowdfunding, registration of the Electronic-Application-style Electronic Public Offering Services is also required. However, regarding equity crowdfunding, it will be registered as a Type I Financial Instruments Business Operator or a Type I Small-amount Electronic Public Offering Service Provider, not a Type II Financial Instruments Business Operator.
If the product is a crypto asset (virtual currency) in the exchange, registration of the Crypto-Asset Exchange Service (the Virtual Currency Exchange Service) is required. In addition, regarding crypto-asset derivatives (futures transactions, etc.), registration of the Type I Financial Instruments Business shall be required.
In addition, automated investment support services such as system trade or robot-advisors are often classified as the Investment Advisory and Agency Businesses.
Q5 : I want to lend/custody money
The business of “lending money, open customers saving/deposit account and providing settlement services (foreign exchange transactions)” can only be carried out by financial institutions such as banks, trust banks, credit unions. However, there are some exceptions with special registration.
You can lend money when you register as the” Money Lenders.” In addition, there are currently no restrictions on lending when lending crypto-assets (virtual currency) instead of FIAT.
Regarding the deposit, only financial institutions can accept money with a guarantee, but you can organize wallet services using crypto-assets (virtual currency) with the Cryptoasset Exchange Service Providers registration (former the Virtual Currency Exchange Service Providers).
For electronic money, registration of the Issuer of Prepaid Payment Instruments is required. In addition, registration of “Prepaid Payment Instruments for Own Business” is necessary for your Business prepaid services.
Regarding providing payment services such as remittance, you can start the business by registering as Funds Transfer Service Providers if the amount is small and meets specific requirements.
For more details, find out here
