Procedural support until registration of Investment Advisory and Agency Business (Investment Advisory Business)
We assist with registration and provides legal support to those who wish to register for Investment Advisory and Agency Business and newly establish an Investment Adviser, as well as those who have already registered for registration.
The Investment Advisory and Agency Business consists of the Investment Advisory Business set forth in Article 2, Paragraph 8, Item 11 of the Financial Instruments and Exchange Law and the agency or brokerage business for the conclusion of the Investment Advisory Agreement or the Discretionary Investment Agreement set forth in Item 13 of the same paragraph.
Nevertheless, in practice, over 90% of the registrations of Investment Advisory and Agency Business are considered to be registered as being engaged in Investment Advisory Business.
Our office generally support a ratio of approximately 5% to 10% of the newly registered Financial Instruments Business nationwide, including Investment Advisory and Agency Business.
We can provide effective advice based on experience based on a large number of cases.
Expansion of the scope of regulation
Under the regulations of the Financial Instruments and Exchange Act, not only general securities such as stocks and bonds and investment trusts (one term securities), but also silent partnership equity interests in real estate funds and real estate trust beneficiary right (deemed securities) are treated as “securities under the Financial Instruments and Exchange Act.”
For this reason, the Company is required to register as an Investment Advisory and Agency Business when conducting advisory services for these acquisitions and dispositions (advising on the value of securities, etc.).
In addition, advisory services for derivative transactions, such as Nikkei Futures and FX/CFD trading (advice on investment decisions based on an analysis of the value of financial instruments, etc.), are also subject to regulation, and it is necessary to register as an Investment Advisory and Agency Business.
Furthermore, the Financial Instruments and Exchange Act and the Funds Settlement Act were revised in 2019, expanding the scope of regulation under the Financial Instruments and Exchange Act to include some virtual currencies (so-called security tokens) and crypto-asset-related derivative transactions.
As a result, from 2020, when the law will go into effect, Investment Advisory Business related to these products is positioned as “Investment Advisory and Agency Business,” which require registration.
Requirements for registration of Investment Advisory and Agency Business
There are several requirements that must be met in order to register as an Investment Advisory and Agency Business.
“Comprehensive Supervisory Guidelines for Financial Instruments Business Operators, etc.” (Investment Advisory and Agency Business) are described as follows.
Top managers must be sufficiently qualified to conduct Financial Instruments Business in a fair and appropriate manner, in terms of their backgrounds and capabilities.
Managing directors must understand the viewpoints regarding governance indicated in the FIEA and various other laws and regulations, and have sufficient knowledge and experience to conduct governance and sufficient knowledge and experience regarding compliance and risk management to conduct Financial Instruments Business in a fair and appropriate manner.
The Financial Instruments Business Operator must be staffed and organized so that personnel necessary for conducting the relevant business in an appropriate manner and managers in charge of internal control are appropriately allocated.
Persons with sufficient knowledge and experience to be in charge of compliance must be secured.
Staff capable of conducting the following processes should be secured with regard to the relevant business.
Compilation and management of account documents and reports.
Disclosure
Risk management
Computer system management
Customer Management
Inspection of Advertising
Customer Data Management
Processing of complaints and disputes
Internal Audit
Personnel structure, etc.
Three experienced financial professionals in representation, compliance and internal auditing are required to register as Investment Advisory and agency Businesses, which is not always correct.
The system and number of people required for registration will vary depending on the business type, scale of operations, customer base, and the career of the party.
If a representative is with extremely advanced knowledge of the financial instruments business, given the small scale of operations to be performed after registration and the volume of operations in the first place is assumed, the representative may be allowed to serve concurrently as the person in charge of compliance.
In that case, even one person can register.
The decision on whether or not to concurrently perform a specific duty varies depending on the content of the business.
In any event, it is necessary to establish a system necessary for conducting “Investment Advisory and Agency Business,” such as investment advice, legal compliance guidance, and internal audits, in the division of roles within the Company.
it is almost impossible for a company that does not have person who has career at Financial Instruments Business Operator or a registered financial institution to register as an Investment Advisory and Agency Business.
In addition to the above, there is a high likelihood that system staff with knowledge and experience in systems will be required in order to provide Investment Advisory and Agency Business using systems such as robo-advisors, system trades, automated trading, and AI.
Number of persons required for registration
As mentioned above, in general, it is said that in principle three people are required to register as Investment Advisory and Agency Business: representative and sales, compliance staff, and internal audit staff.
In business categories where the number of customers is not expected to be so large and the risk of protecting investors is relatively low, there are cases in which compliance officers and internal audit officers are concurrently assigned.
Furthermore, there is room to register as an Investment Advisory and Agency Business even if the total number of officers and employees is one in a business category where the representative has a long history of working at a Financial Instruments Business Operator or a registered financial institution and does not deal with a large number of persons, such as institutional investors and FP, and where risks to investor protection are particularly low.
It would be difficult to register with a single employee, for example, by distributing stocks to general investors and offering online salon services, in a business format that targets a relatively large number of people.
Financial requirements
In terms of funding, it is mandatory to pay a deposit of 5 million yen to the relevant Legal Bureau.
This JPY 5 million is a deposit rather than the company’s capital stock.
There is no minimum capital requirement.
The deposit amount of 5 million yen is only a deposit, so if you cancel the registration, it will return to your hands, but you have to keep it for a long time during the registration period.
The time of deposit is when registration is completed.
However, deposits are no longer required in cases where other Financial Instruments Business, such as the Type II Financial Instruments Business, is conducted simultaneously.
How can we reduce the time until the start of operations?
The standard processing period for the official registration application for the Financial Instruments Business is two months from the application to completion.
However, if the time required for the preliminary examination is combined with the time required to join the Japan Investment Advisers Association or the Lawyers Association Dispute Resolution Center after registration, it will inevitably take about six months to begin operations.
We would like customers to open a trading account for FX overseas, etc., but could you register with an investment advisory and agency business?
Over-the-counter derivatives transactions with domestic resident general investors constitute the Type I Financial Instruments Business.
Therefore, an overseas FX trading company that has not registered as Type I Financial Instruments Business in Japan will conduct an unregistered business if the resident of the general investor is required to conduct FX trading.
Intermediary services(IB) for transactions are also part of Type I Financial Instruments Business and cannot be provided in Investment Advisory and Agency Business.
Flow to Investment Advisory and Agency Business Registration
Decisions on schemes and preparation of application documents・・・We will decide the business scheme and start preparing the outline and application documents accordingly.
Hearings with examining officers at the relevant financial office in which the head office is located・・・Questions concerning the details of the business scheme and the background of officers and employees are given. In recent years, this hearing and other preliminary examinations have tended to be prolonged.
Submission and acceptance of application documents・・・Once the preliminary review is completed over a few months, the officer is instructed to file a formal application for registration. You will pay the registration and license tax of 150,000 yen at this stage.
Registration・・・The period from “filing of registration application” to “completion of registration” is approximately 1.5 months (the official standard processing period is 2 months).Of course, if we include the preliminary review period, it will be a longer period.
Deposit and Notification of Business Security Deposit・・・After the registration is completed, a deposit of 5 million yen is required as a business security deposit promptly.
Start operations・・・You must join the Japan Investment Advisors Association or the Japan Bar Association Dispute Resolution Center because you are obliged to take measures to resolve complaints and disputes prior to commencing operations. Therefore, even after registration, it will take about two months to start operations.
I stated that it would be necessary to join the Japan Investment Advisors Association for the purpose of handling complaints and disputes (ADR) or to enter into a contract with the Japan Dispute Resolution Center for Bar Associations. However, it would take a certain amount of time to enter into a association or use enter into a contract.
The Japan Investment Advisers Association charges a membership fee of JPY 0.2 million and a membership fee of JPY 0.1 million (*special measures such as installments and reductions). Considering only the expenses, the Lawyers’ Association Dispute Resolution Center is cheaper.
However, since the Association is a self-regulatory organization, it is believed that it is desirable to join it in the view of compliance. In general, 70% of the newly registered company join the association.
