Interim Report of the Working Group on Capital Market Regulations

The FSA has recently released „Cabinet Office Order to Amend the Cabinet Office Order on Financial Instruments Business, etc.“ (only available in Japanese) following a comprehensive public consultation process. This development was instigated by recommendations delineated in the „Interim Report of the Working Group on Capital Market Regulations“ (only available in Japanese) a document crafted by the Working Group on Capital Market Regulations within the Financial System Council. The primary objective of this Cabinet Office Order is to elevate the regulatory environment for financial business operators seeking to engage in investment advisory activities as a subsidiary business.
The amendments introduced in the finalized Cabinet Office Order center on several critical facets. Firstly, there will be a thorough review of the registration process concerning investment advisory business and the specific individuals responsible for submitting requisite notifications. Secondly, these amendments will outline the specific information that must be included in documents disseminated prior to the execution of investment advisory and discretionary investment management contracts. Thirdly, the order will introduce flexibility in selecting the media for documents delineating advisory content based on investment advisory contracts. Lastly, there will be an evaluation of exemptions related to lending prohibitions pertaining to investment advisory services.
The aforementioned interim report serving as the foundation for these regulatory adjustments underscores the vital necessity of diversifying financial products and services to align with the evolving demands of consumers. It also underscores the imperative of enhancing the quality of financial advice dispensed to clients. To actualize these objectives, the report recommends several pivotal measures:
Firstly, it advocates for the introduction of a standardized format for disclosing pivotal information about financial products. This standardization is poised to empower customers with the ability to make informed comparisons and decisions. Secondly, the report endorses the utilization of digital tools to provide clients with comprehensive and user-friendly information. Thirdly, it calls for the promotion of innovation within the financial sector, including the integration of emerging technologies such as blockchain and artificial intelligence. These advancements should be supported by a supple regulatory framework designed to safeguard clients while fostering innovation. Lastly, the report accentuates the exigency of broadening the spectrum of funding sources accessible to businesses. This encompasses advocating for venture capital promotion, bolstering the securitization market, and establishing a framework for the provision of growth and turnaround funds, thus lending support to the growth of small and medium-sized enterprises.
The finalized Cabinet Office Order is scheduled to take effect on 15 August 2023, in tandem with the related Comprehensive Guidelines for Supervision of Financial Instruments Business Operators, etc.. These initiatives underscore the FSA’s unwavering commitment to nurturing a dynamic, customer-centric financial landscape within Japan.