Enforcement of financial services regulations in Japan

Enforcement

What powers do national financial services authorities have to examine and investigate compliance? What enforcement powers do they have for compliance breaches? How is compliance examined and enforced in practice?

The FIEA gives the JFSA the power, when necessary and appropriate for the public interest or protection of investors, to order a FIBO to submit reports or materials on the business and assets of the FIBO, and to inspect the FIBO’s business operations, assets, books of accounts and other documents. The SESC is also empowered to perform on- and off-site inspections of a FIBO. Similarly, LFBs have the right to conduct inspections of FIBOs and to provide them with regulatory supervision. Where a FIBO is deemed to have misconducted itself based on the findings in such inspections, the JFSA may impose administrative sanctions on the FIBO for the purpose of remedying such misconduct.

What are the powers of national financial services authorities to discipline or punish infractions? Which other bodies are responsible for criminal enforcement relating to compliance violations?

The FIEA empowers the JFSA to impose administrative sanctions on FIBOs that violate applicable statutory requirements. However, none of the JFSA, SESC or LFBs have the power to impose criminal sanctions on financial business operators. Criminal sanctions are instead imposed by the Public Prosecutors Office through criminal procedures.

What tribunals adjudicate criminal and civil financial services infractions?

Japanese law does not provide for a separate tribunal for the adjudication of crimes or civil infractions related to financial services. Such wrongdoings are adjudicated by ordinary courts of law.

What are typical sanctions imposed against firms and individuals for violations? Are settlements common?

FIBOs that violate applicable laws and regulations would typically be subject to administrative sanctions imposed by the JFSA for the purpose of remedying the relevant violation. Where the violation is serious and malicious, the FIBO may have its registration revoked or be ordered to suspend all or part of its business for a period not exceeding six months. Depending on the nature of its violation, a FIBO may also be subject to criminal sanctions.

A non-exempt financial service business operator that operates without registration as a FIBO is punishable with a fine not exceeding ¥500 million. Additionally, the responsible officers and employees of such business operator are punishable with imprisonment for a term not exceeding five years or a fine not exceeding ¥5 million, or both.

Japanese law does not provide for a system of settlement in respect of violations of the FIEA. In practice, when determining the appropriate administrative action to take, the JFSA will take into account any voluntary remedial efforts made by the FIBO (based on prior consultation with the JFSA) before imposing any administrative sanction.