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Special Business for Overseas Investors etc.

Special Business for Overseas Investors etc.

What is the Special Permitted Business for Overseas Investors
Establishment of Special Permitted Business for Overseas Investors

Attracting Foreign Asset Managers to Japan is an important policy to improve the position of the Tokyo Financial Market. Therefore, the Japanese Government will start a preferential treatment for Foreign Asset Managers from the end of 2021 to the beginning of 2022.

Special Permitted Business for Overseas Investors
Establishment of “Specially Permitted Business for Overseas Investors” has been established as a permanent system, and Fund Management Business and Offering or Private Placement Business for group investment schemes (that meet specific requirements) with “overseas investors” allow to carry out by notification.

Specially Permitted Business During Transition Period
In addition to the Specially Permitted Business for Overseas Investors, there is a unique system for “Specially Permitted Business During Transition Period.” Specially Permitted Business During Transition Period can carry out within 5 years only from the notification. It is a time-limited measure for 5 years from the law’s enforcement date. This is a license for an Asset Manager who is currently licensed in a foreign country and wants to move the investment base to Japan. It is not allowed to solicit domestic customers who live in Japan.

The law stipulates the reasons for refusal to register “Specially Permitted Business During the Transition Period” such as those who have not received a license in a foreign country, those who have not passed the period (specified by a Cabinet Order) after receiving the license, and those who do not have a proper organizational structure. The law expects companies with a proven track record to carry out Investment Management in foreign countries.

After submitting a notification of “Specially Permitted Business During the Transition Period,” the Foreign Investment Manager can carry out Discretionary Investment Business, Investment Trust Consignment Business, Fund Management Business of a foreign collective investment scheme, and other business specified by Cabinet Order at the office established in Japan.
Besides, “Specially Permitted Business During the Transition Period” can carry out the offering or private placement of

beneficiary certificates of foreign investment trusts,
foreign investment securities and foreign collective investment
schemes that are managed by themselves at the discretion of
the investment management business operator
foreign investment trust beneficiary securities as a consignor, foreign collective investment schemes or private placements as an issuer.

General

The “Specially Permitted Businesses for Overseas Investors, etc.” is designed very similarly to the “Specially Permitted Businesses for Qualified Institutional Investors.”

It is noted that the difference between the “Specially Permitted Businesses for Qualified Institutional Investors, etc.” and “Specially Permitted Businesses for Overseas Investors, etc.” is “Specially Permitted Businesses for Overseas Investors, etc.” includes the public offering business of the collective investment scheme.

“Specially Permitted Businesses for Qualified Institutional Investors” is limited to carry out the private offering, and the number of right holders per fund is limited to 499 (including 49 investors who are eligible for Specially Permitted Business), which is the maximum limit of private offering of paragraph 2 securities. However, it will be possible to establish and manage a more significant number of funds by “Specially Permitted Businesses for Overseas Investors, etc. “

Investment or contribution mainly from non-residents

The fund invested or contributed to the collective investment scheme of “Specially Permitted Businesses for Overseas Investors, etc.,”
is limited to mainly invested or contributed by non-residents and excluded the fund specified by the Cabinet Office Ordinance, which risks protecting investors.

In the Financial Instruments and Exchange Act, “mainly” means more than 50%. It means that the requirement for notification is the investment from non-residents should be more than 50%.

Restriction on Double-layer structure

When a fund of “Specially Permitted Businesses for Overseas Investors, etc.” receives investments from SPCs or funds, it does not fulfill the requirements for “Specially Permitted Businesses for Overseas Investors, etc.” if some investors do not qualify as “overseas investors.”

Overseas Investors

Based on (draft) Article 63-8, Paragraph 2 of the Financial Instruments and Exchange Act, “Foreign Investor” is defined as below, which clarifies that foreign corporations and certain non-residents, qualified institutional investors, and closely related persons are eligible to carry out “Specially Permitted Businesses for Overseas Investors, etc.”

A Foreign Company or an Individual who has an address in a foreign country defined by a Cabinet Office Ordinance in consideration of the knowledge, experience, and property status.
Qualified institutional investors (including those specified by Cabinet Office Ordinance as equivalent persons, excluding foreign companies and individuals in the preceding item)
A person who has a close relationship with a person who carries out the acts listed in the preceding items specified by a Cabinet Office Ordinance.
Detailed requirements are entrusted to Government Ordinances and Cabinet Office Ordinances; we expect the range of Investors and closely related parties for “Specially Permitted Business for Foreign Investors” are similar to that of “Specially Permitted Businesses for Qualified Institutional Investors, etc.”

Notification

Regarding the notification procedure for “Specially Permitted Businesses for Overseas Investors, etc.,” the notification items are as follows:

Trade name, Company Name, or Personal Name
If you are a company, the amount of capital or the total amount of investment
If you are a company, the company name or name of the officer
If there is an employee required by a Cabinet Order, the name of the person
Type of business (refers to the type of business related to the acts listed in each item of paragraph 1 of the preceding article)
Name and location of the main business office (in the case of a foreign company, the main business office in Japan)
Name and location of the business office that carries out “Specially Permitted Businesses for Overseas Investors, etc.”
If you are doing other business, the type of business
Other matters specified by Cabinet Ordinance
In addition to public inspections at the Finance Bureau, it is required public inspections at the main business offices and all offices to carry out “Specially Permitted Businesses for Overseas Investors, etc.” and online public inspection.

Reasons for Disqualification

Section 6 stipulates the reasons for disqualification to carry out “Specially Permitted Businesses for Overseas Investors, etc.”

Disqualification includes general reasons for disqualification in the Financial Instruments Business, those who do not have a proper organization, and those who are recognized and do not have the necessary systems in place. We expect that “Specially Permitted Businesses for Overseas Investors, etc.” will be subject to substantive examination even though it is regulated as notification.

Obligation to set up a domestic office

Companies that do not have an office in Japan, companies that do not have a representative in Japan, and individuals who do not have an address in Japan will be disqualified.

Restriction of Business Activity

It is necessary to report when there is a change in the notification items. In addition, “Specially Permitted Businesses for Overseas Investors, etc.” is regarded as the Financial Instruments Business Operator and applied some regulations.

The range of application of the regulation to the Financial Instruments Business Operator is almost the same as that of “Specially Permitted Businesses for Qualified Institutional Investors”
However, it differs from the “Specially Permitted Businesses for Qualified Institutional Investors, etc.” in terms of “Business Management System Setting” that is applied only to the “Specially Permitted Businesses for Overseas Investors, etc.”

“The Financial Instruments Business Operator must establish a Business Management System in accordance with the Cabinet Office Ordinance to properly carry out the Financial Instruments Business or Registered Financial Institution business.” It is necessary to wait for Cabinet Order and Cabinet Office Ordinance regarding regulations related to the obligation to establish the Business Management System.

Obligation to notify upon losing qualification

Finance Bureau can order to take the necessary measures within 3 months for the following cases:
-When the fund that managed by the “Specially Permitted Businesses
for Overseas Investors” is no longer meets the requirements for
“Specially Permitted Businesses for Overseas Investors, etc.” or

When the money invested or contributed is no longer mainly
invested or contributed by non-residents

“Specially Permitted Businesses for Overseas Investors, etc.” companies are obliged to notify without delay in the above cases.

Others

Specially Permitted Businesses carried out by the “Specially Permitted Businesses for Overseas Investors, etc.” does not apply to
“Specially Permitted Businesses for Qualified Institutional Investors.”
as there is overlapping of the business and target Investors for “Specially Permitted Businesses for Overseas Investors, etc.” and “Specially Permitted Businesses for Qualified Institutional Investors, etc..”
The Financial Instruments Business Operator can carry out “Specially Permitted Businesses for Overseas Investors, etc.”

It is required to prepare accounting books, Business Reports and submit them within 3 months after each business year (the period specified by Cabinet Order for foreign companies). Public inspection of explanatory documents or publication on the Internet is required.

Punishment

The Prime Minister can issue an order to suspend or abolition business while setting a period of up to 6 months for the “Specially Permitted Businesses for Overseas Investors, etc.” applicants if they fall under any of the following.

In addition, there are systems for reporting and inspection. “Specially Permitted Businesses for Overseas Investors, etc.” are supervised as Financial Instruments Business Operators and “Specially Permitted Businesses for Qualified Institutional Investors, etc.”

When violating a law or a disposition of an administrative agency based on the relevant laws related to “Specially Permitted Businesses for Overseas Investors, etc.”
When there is a fact that harms the investors’ interest regarding the operation of “Specially Permitted Businesses for Overseas Investors, etc.”
When the situation is particularly serious due to fraudulent or extremely unjust acts related to “Specially Permitted Businesses for Overseas Investors, etc.”。

Special feature: Promotion of entry of overseas asset managers
The Financial Services Agency is encouraging the entry of overseas asset managers, and else, with the aim of establishing Japan’s position as an international financial center open to the world.
Full-scale regulatory reforms are underway, such as tax reform, the establishment of The special business for overseas investors and The special business for the transition period, and simplification of procedures.

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