We asked friends at Baker McKenzie to provide an overview of the opportunities and support for companies interested in the Japanese market. They have also launched their ‘UK-Japan Connect’ business forum to further engage businesses around various legal issues that they need to understand when embarking on their journey into Japan.
To find out more read on…
1. Some of the reasons for asset management firms to consider Japan for business development (background on the improvements to the asset management industry here)
1.1 There are several compelling reasons that foreign asset management firms commonly and increasingly consider Japan for expansion and business development. These include:
(a) Government initiatives: The Japanese government has implemented various measures to promote Japan as a leading asset management centre. This includes the “Double Asset-based Income Plan” and the expansion of NISA, a tax exemption scheme for retail investors that is aimed at encouraging individuals to create productive investments.
(b) Corporate governance reforms: Japan is actively reforming its corporate governance practices, which has led to improved capital efficiency and increased shareholder returns. In turn, this has made Japanese companies more attractive to investors.
(c) Modernising capital markets: Japan’s capital markets are increasingly becoming more modern and efficient, with increased engagement and positive changes in corporate attitudes. This makes it easier for foreign asset management firms to operate and invest in Japan.
(d) Economic stability: Despite global economic uncertainty and flux, Japan maintains a comparatively stable inflation rate with an accommodative monetary policy, which provides a favourable environment for long-term investment.
(e) Attractive valuations: Japanese equities have been trading at some of the most attractive levels relative to global equities in recent times, which provides a significant opportunity for investors looking for undervalued stocks.
(f) Strategic location: Japan holds a strategic position in Asia that offers asset management firms access to a large and growing market, which includes significant potential opportunities for collaboration and expansion elsewhere in the region.
1.2 Collectively, these factors make Japan an attractive destination for asset management firms considering expansion.
2. Applicable License requirements
2.1 The Financial Instruments and Exchange Act of Japan (Act No. 25 of 1948, as amended) (“FIEA“) is the primary regulation with respect to fund related activities. The FIEA provides applicable registration requirements depending on the type of the funds to be offered and the type of business engaged in Japan. For foreign funds (i.e., those established outside Japan under law other than Japanese law), typical examples for applicable registration requirements are:
(a) Marketing/distribution of fund interests to Japanese residents
The applicable registration requirements for a person who engages in marketing/distribution of fund interests to Japanese residents depend on whether the fund is in the form of: (a) a trust or corporation (e.g., unit trusts and portfolio segregated companies); or (b) a partnership.
(i) Funds in the form of a trust or corporation
A person conducting marketing/distribution of fund interests to Japanese residents must be registered as Type I Financial Instruments Business Operator (Type I FIBO) under the FIEA.
(ii) Funds in the form of a partnership
A person conducting marketing/distribution of fund interests to Japanese residents must be registered as Type II Financial Instruments Business Operator (Type II FIBO) under the FIEA.
(b) Acting as general partner of limited partnerships
A general partner of a limited partnership must be registered as a Financial Instruments Business Operator for Investment Management Business (“IM FIBO“) if: (i) it is located in Japan; or (ii) the partnership has one or more partners resident in Japan.
IM FIBO registration is not required where majority of the portfolio assets of the partnership are not securities or derivatives.
(c) Acting as investment manager/advisor for limited partnerships
An investment manager/advisor for funds must be registered as an IM FIBO or a Financial Instruments Business Operator for Investment Advisory/Agency Business (“IA FIBO“) if: (i) it is located in Japan; or (ii) the fund is located in Japan. IM FIBO is required if it has discretionary investment powers. Alternatively, if it only provides investment advice and the general partner makes the final investment decision, then IA FIBO is sufficient.
IM FIBO/IA FIBO registration is not required where the majority of portfolio assets of the partnership are not securities or derivatives.
2.2 Various exemptions are available, but each exemption has different very detailed applicability conditions regarding the applicable fund structure and the eligible criteria for investors. For example, one of the most popular exemptions is the Special Business Activities for Qualified Institutional Investors under Article 63 of the FIEA. This exemption is only available for the general partner of limited partnership, which has at least one Qualified Institutional Investor defined in the FIEA (“QII“). Where the partnership has one or more QIIs, the GP of the partnership is allowed to offer the interests in the fund to less than 50 non-QIIs, who satisfy certain requirements under the FIEA. Under this exemption under Article 63 of the FIEA, the general partner is allowed to market its fund interest to certain Japanese residents and to manage the fund without any license/registration under Japanese law. In order to use this exemption under Article 63 of the FIEA, the applicant GP must file a Form 20 notification together with certain accompanying documents such as its constitutional documents and CVs of its directors. Although much simpler than for Type II FIBOs and IM FIBOs, it must also comply with certain business conduct regulations, such as submitting annual reports describing general financial status of the fund.
2.3 In November 2021, the Japanese government introduced the Specially Permitted Business for Foreign Investors, etc. (“SPBFI“), which is a special regime for the investment management and marketing activities of a partnership-type fund where the majority of investors of the fund are non-Japanese residents. A fund may wish to consider SPBFI if it does not expect Japanese investors to be its primary investor target, but it wishes to conduct investment activities in Japan in Japanese assets.
2.4 In addition to the Article 63 exemption and the SPBFI above, there are other possible exemptions that may be available, such as the exemption for funds for foreign investors and the exemption for foreign securities dealers. Individual legal advice should be sought on each exemption requirement, as they have very detailed applicability conditions regarding the applicable fund structure and the attributes of the eligible investors.
3. Registration of funds
3.1 Aside from the license/registration requirements applicable to the distributors, general partners and managers, registration or notification of the foreign fund itself may be required.
3.2 Foreign funds in the form of a trust or corporation must be notified to the authorities prior to sale in Japan under the Act on Investment Trusts and Investment Corporations of Japan (Act No. 198 of 1951, as amended) (“ITIC Act“). This notification under the ITIC Act consists of a Japanese summary translation of the fund terms and is a relatively simple filing compared to the public offering registration as discussed below.
3.3 If a foreign fund is offered publicly in Japan, the fund must be registered by filing of a Securities Registration Statement with the similar contents as a prospectus under the FIEA. The registered funds will thereafter be subject to ongoing continuous disclosure requirements. In principle, this registration would be required if the number of the offeree is 50 or more (500 or more if the fund is a partnership) excluding QIIs.
4. Support and subsidies available
4.1 The Japan Financial Services Agency (“JFSA“) set up the Financial Market Entry Office with the aim of attracting foreign fund managers and other financial professionals to the Japanese market. The Financial Market Entry Office “handle(s) all the regulatory process from pre-application consultation, registration, to supervision after the registration for newly entering asset management firms as a single point of contact with all the communications available in English.”[1] Although the JFSA only ordinarily accepts Japanese language documents in principle, the Financial Market Entry Office accepts English language for the application process of Type I FIBO (only limited scope concerning fund business), Type II FIBO (only limited scope concerning fund business), IM FIBO, IA FIBO or SPBFI.
4.2 In addition, the JFSA runs a Financial Start-up Support Program for those who are engaged in fund businesses outside Japan and wish to obtain registration of Type I FIBO (only limited scope concerning fund business), Type II FIBO (only limited scope concerning fund business), IM FIBO, IA FIBO or SPBFI. Under this program, applicants can receive rebates for a certain percentage of the costs of setting up a base in Japan and obtaining the relevant licenses, provided that certain conditions are met. As this development programme is set for each financial year, those wishing to take advantage of it should check with the FSA and its agents for detailed conditions.
5. What role might BM be able to play?
5.1 Baker McKenzie is uniquely placed to assist individuals and companies seeking to enter the Japanese market. With a history in Japan stretching back to 1972, our Tokyo office is the largest foreign law joint enterprise in Japan, with nearly 150 legal and tax professionals based in Tokyo (including England & Wales qualified solicitors). Moreover, our London office is largest of any international law firm with a presence in the UK.
5.2 Our Tokyo office provides a full range of legal services covering all major areas of law — including those affecting the finance space — in both English and Japanese. In addition, Baker McKenzie’s unmatched global network gives us the ability to offer our clients the best legal expertise available not just in Japan, but nearly anywhere in the world, under a single roof. Other law firms simply cannot do this at the level we can.
5.3 In 2024, Baker McKenzie created “UK Japan Connect,” a legal and business forum connecting people, culture and business in Japan and the UK. Through this initiative, we are driving engagement between the governments, trade and industry associations and top corporates and intermediaries of the UK and Japan (including through events in both the UK and Japan). Through our UK Japan Connect newsletter and other publications, we are actively engaging in outreach and building partnerships. UK Japan Connect helps businesses keep abreast of legal issues and explore new investment opportunities in both countries.
[1] https://www.fsa.go.jp/en/policy/marketentry/index.html
For information on the range of legal support and advice for British businesses wanting to expand to Japan, please get in touch with us: contact
