Newsletter No.002|August 15th 2023

Amendments of Cabinet
Office Order on Financial
Instruments Business, etc.
for the improvement ofConcurrent Engagement inan Investment AdvisoryBusinessAtsumi & Sakai
Policy Research InstituteThe Amendments of Cabinet Office Order on Financial Instruments Business, etc. forthe improvement of concurrent engagement in an investment advisory business waspromulgated on August 1, 2023 1, and will come into force on August 15, 2023; thisnewsletter outlines the amendment.
1. Registration and Notification for Investment Advisory Business (投資助言業)
In order to conduct a thorough eligibility review of important personnel, theregistration application for an investment advisory business required theinclusion of the names of individuals who make investment decisions based on
the analysis of financial products (analysts, etc.), and any changes of suchindividuals must be promptly notified to Financial Services Agency, Japan (JFSA).
Some businesses, especially large type I financial instruments business operators,
expressed concerns about the administrative burden of registering and notifying
numerous employees who qualify as analysts and important personnel.
The amendment allows the omission of the notification of the names ofindividuals who have equivalent qualifications to important personnel (e.g.,individuals registered as overseas representatives of the company) and who areappropriately managed within the organization and engaged in advisory services.
2. Documents Provided Before and at the Time of Entering an Investment Advisory
Contract (投資顧問契約) and a Discretionary investment contract (投資一任契約)
From the perspective of providing information to clients, it was required for aninvestment advisory business to include the names of individuals who perform
analysis of financial product values or investment decisions based on suchanalysis (analysts, etc.), and individuals engaged in advisory services (advisors)in the documents provided before ( 契 約 締 結 前 交 付 書 面 ) and at the time ofentering an investment advisory contract ( 契 約 締 結 時 交 付 書 面 ) and adiscretionary investment contract (including provided by its agency such as

1 https://www.fsa.go.jp/news/r5/shouken/20230801/20230801.html

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Financial services intermediary (金融サービス仲介業) and Financial Instruments
Intermediation (金融商品仲介業)).
However, some businesses asserted that it could be challenging to specify andinclude the names of individual analysts and advisors in the documents,
particularly when providing advisory services systematically to clients.
In such cases, the amendment allows the use of alternative descriptions, such as
the names of departments responsible for conducting analysis and advisory
services, assuming that the individuals involved can be identified from thecompany's records, and the necessary information can be provided to clients
when they request it.
3. Written Record of Advice Based on Investment Advisory ContractsInvestment advisory businesses were required to create and retain a written
record of advice based on investment advisory contracts as part of theirbookkeeping. Some businesses raised concerns that (ⅰ) the items to be recorded
and their contents are not clear, and (ⅱ) recording the content of individual
advicecanbe

administratively

burdensome,leadingtoinadequate

communication with clients, especially when providing paid advice to a wide
range of clients.
To address these concerns, the amendment clarifies the points which need to beconsidered when making the record and allows alternative ways (such as using
record-keeping methods already installed in practice) to reduce the current
burden.
4. Clarification of the Scope of Prohibition of Loans and Other Transactions Related
to Investment Advisory Services for Type 1 Financial Instruments Business
Operator (第一種金融商品取引業者)
In the interest of protecting investors from malicious operators engaging inunauthorized transactions and fund misappropriation, investment advisorybusinesses were prohibited from providing loans, mediating loans, acting asintermediaries, or acting as agents for loans to clients in connection with their2investment advisory services. Some businesses expressed concerns that they may
not be able to offer certain services such as securities collateral loans or theirintermediation when conducting an investment advisory business concurrently
with the type I financial instruments business.
The amendment permits loans and related transactions by the type I financial
instruments business operators when they engage in investment advisory
services under certain conditions (including comprehensive understanding of
the current state of loans and other transactions carried out by such type I
financial instruments business operators, and if necessary, installing enhanced
conflict of interest management and internal control systems).

-----------------------------------------------------------------------------------------------------------------THIS NEWSLETTER IS PROVIDED FOR INFORMATION PURPOSES ONLY; IT DOES NOTCONSTITUTE AND SHOULD NOT BE RELIED UPON AS LEGAL ADVICE.
------------------------------------------------------------------------------------------------------------------Authors/Contacts
Takafumi Ochiai

Kenichi Tanizaki

Atsumi & Sakai

Atsumi & Sakai

Head of Policy Research Institute

Deputy Head of Policy Research InstituteE: takafumi.ochiai@aplaw.jp

E: kenichi.tanizaki@aplaw.jp

Tatsuhiro Hirayama
Atsumi & Sakai
Policy Research InstituteSenior chief researcher
E: tatsuhiro.hirayama@aplaw.jp

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