Land of rising red tape

Raising money from Japanese investors just got harder for managers outside of the country, writes Monument Group general counsel Molly Diggins.

Japan has just made it more difficult for outsiders to market funds in the country, by amending the rules for obtaining exemption from registration with its Financial Services Agency (FSA).

Non-Japan based GPs have often used Form 20 filings under an Article 63 Exemption to be able to comply with
regulation without full registration.

The exemption had been popular because it gives offshore fund managers the leeway to market in Japan and to take on Japanese investors without onerous regulatory burdens.

However, on March 1, 2016 – with a grace period until August 31 for existing Form 20 filers – taking advantage of this exemption became harder for offshore managers.

Now, to take advantage of the exemption, managers must make additional disclosures, create and maintain additional documentation and reports, and, perhaps most notably, appoint a Japan representative.


The amendments require offshore fund managers to appoint a representative in Japan who can provide swift and efficient communications with Japanese regulators on the manager’s behalf.

The FSA has agreed that appropriate professional service providers, such as lawyers and public accountants, and other FSA-licensed entities – including Type II licensed distributors or placement agents with local offices – can fill this role as long as the representative is a resident in Japan and can communicate immediately and effectively with the offshore manager.


Offshore managers will now need to disclose significantly more information to the FSA when they fill in Article 63 notifications or amend an existing Form 20, including:

• The name and address of the office where the fund conducts business

• A description of relevant investment portfolios of the fund; and

• The name, type, and number of all Japanese qualified institutional investors in the fund

The FSA will also require additional documentation, such as:

• An oath from the offshore manager, its officers and employees regarding qualification criteria

• The constitutional document of the manager; and

• The corporate registration of the manager

While certainly not impossible, these additional filing and disclosure requirements may go beyond the disclosure “comfort zone” of many managers and require the allocation of additional compliance resources.


Offshore managers are also now required by Article 63 to file an annual business report with the FSA and make it available to the public on request. An investor ledger and transaction record for each Japanese investor must also be created and maintained by offshore managers for 10 years. Although most offshore managers would otherwise retain the necessary information, they may need to adapt internal retention policies in order to maintain it in the required format.


Article 63’s new filing and disclosure obligations, as well as the representative appointment requirement, perhaps
eliminate the previous allure of the article’s exemption for offshore managers who are looking to market in

Fund managers should instead consider the FSA’s de minimis exemption, which, with the appointment of a Type II-licensed distributor, would allow for access to Japanese institutional investors without the need for any FSA filings.