Regulation, licensing and registration

Principal regulatory bodies

What are the principal regulatory bodies that would have authority over a private equity fund and its manager in your jurisdiction, and what are the regulators’ audit and inspection rights and managers’ regulatory reporting requirements to investors or regulators?

Unless exempted under the FIEA, the general partner is required to register him or herself as a FIBO that engages in offering fund interest (Type II business) or discretionary investment management business. The Financial Services Agency (FSA) or the local financial bureaus (LFBs) are the principal regulatory bodies over a general partner of the fund. If a general partner registers itself as a FIBO, the FSA or the LFBs have broad power and authority to audit and inspect this general partner. It is also required to regularly provide investment management reports to investors and submit annual business reports to the relevant LFB, although they also are required to follow other continuous reporting requirements.

As a matter of practice, however, most of the general partners rely on the exemption from the above business licence requirements by satisfying certain conditions under article 63 of the FIEA (the QII business exemption) (see question 24 for the conditions of such exemption). Even in such a case, the FSA or the LFBs maintain the right to monitor and inspect such general partners, but it is not on a regular basis. Such general partners are required to file and update certain matters with the LFBs. Such general partners must comply with certain conduct requirements equivalent to a FIBO, and they may be required to regularly provide investment management reports to investors in connection with the status of investors. Such general partners must prepare and maintain records on their business, and must prepare and submit an annual business report to the LFBs, and must make some parts of their business reports available to the public at their relevant offices or on their website.

Governmental requirements

What are the governmental approval, licensing or registration requirements applicable to a private equity fund in your jurisdiction? Does it make a difference whether there are significant investment activities in your jurisdiction?

As opposed to a corporate-type fund or unit trust, partnership-type funds do not need be registered under the mutual fund law of Japan. However, if the interests are publicly offered in Japan, the general partner has to file the securities registration statement, prepare and deliver the prospectus to the investors, and conduct the ongoing disclosure under the FIEA. In connection with the FIEA, the location of significant investment activities does not make any difference in the application thereof.

See question 10 regarding the licence requirements for the general partner.

Registration of investment adviser

Is a private equity fund’s manager, or any of its officers, directors or control persons, required to register as an investment adviser in your jurisdiction?

See question 10 regarding the licence requirements for general partners. Once a general partner is registered as a FIBO on an entity basis, the officers or directors do not need to obtain a separate licence (their information is included in the FIBO application documents of the general partner). They may conduct their business as personnel of the licensed FIBO. A control person will, as the case may be, be required to file another report of its shareholding of the licensed FIBO under the FIEA.

There is no such registration requirement if the general partner relies on the QII business exemption (the information regarding the officers or directors is included in the notification (Form 20) to be filed by the general partner), although the requirement to report a control person is not applicable.

Fund manager requirements

Are there any specific qualifications or other requirements imposed on a private equity fund’s manager, or any of its officers, directors or control persons, in your jurisdiction?

If the general partner registers as a FIBO that engages in discretionary investment management, it must satisfy the following requirements for the registration:

  • its permission, approval or registration necessary for financial instrument business or other business under the FIEA or other equivalent non-Japanese laws has not been rescinded within the preceding five years;
  • it has not violated the FIEA or other laws, and has not been subject to a fine within the preceding five years;
  • it has not engaged in business contrary to the public interest;
  • it has sufficient staff to properly conduct financial instrument business;
  • it has ¥50 million in stated capital or in total equity;
  • it is either a Japanese corporation with a board of directors, or a foreign corporation equivalent thereto;
  • it has net assets of at least ¥50 million;
  • it does not engage in such business (other than permitted business under the FIEA) that it cannot properly control the risk;
  • none of its directors, officers, others who have power to manage it, fund managers or compliance officers fall into any of the excluded categories under the FIEA; and
  • if it is a Japanese corporation, none of its major shareholders fall into any of the excluded categories under the FIEA; if it is a non-Japanese entity, the authorities in its home jurisdiction confirm that the solid and appropriate operation of its financial instrument business will not be prevented by any major shareholders.

If the general partner relies on the QII business exemption, it must satisfy the following requirements (see question 24 for further conditions of such exemption):

  • its permission, approval or registration necessary for financial instrument business or other business under the FIEA or other equivalent non-Japanese laws has not been rescinded within the preceding five years;
  • it has not violated the FIEA or other laws, and has not been subject to a fine within the preceding five years;
  • none of its directors, officers, others who have power to manage it, fund managers or compliance officers fall into any of the excluded categories under the FIEA;
  • if it is a non-Japanese person, any foreign regulatory authority in the jurisdiction where the general partner domiciles or is operating has signed the International Organization of Securities Commissions Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information, or an equivalent bilateral agreement with the Japanese government; and
  • if it is a non-Japanese person, it must appoint a representative in Japan.
Political contributions

Describe any rules - or policies of public pension plans or other governmental entities - in your jurisdiction that restrict, or require disclosure of, political contributions by a private equity fund’s manager or investment adviser or their employees.

In Japan, no one may accept contributions for political activities from a non-Japanese person or a Japanese entity whose equities are mainly held by a non-Japanese person. Other than this restriction, a general partner may make political contributions, which are in principle disclosed to the public.

Use of intermediaries and lobbyist registration

Describe any rules - or policies of public pension plans or other governmental entities - in your jurisdiction that restrict, or require disclosure by a private equity fund’s manager or investment adviser of, the engagement of placement agents, lobbyists or other intermediaries in the marketing of the fund to public pension plans and other governmental entities. Describe any rules that require a fund’s investment adviser or its employees and agents to register as lobbyists in the marketing of the fund to public pension plans and governmental entities.

There is no such restriction or requirement under Japanese law. We have not found any such internal rule or policy of public pension plans or governmental entities, based on publicly available information.

Bank participation

Describe any legal or regulatory developments emerging from the recent global financial crisis that specifically affect banks with respect to investing in or sponsoring private equity funds.

This is not a recent legal development, but owing to the voting equity holding restriction applicable to banking entities, a Japanese bank would hesitate to hold more than a 5 per cent interest in a partnership-type private equity fund unless specifically exempted thereunder. In the case of a limited partnership under the AIBLPA, a bank may rely on the exemption if certain conditions are met, but usually requests that the general partner make further covenants to ensure its compliance with such regulations.