Japan Continues to Relax Registration Requirements – Simplified Type 1 FIBO Registration

Japanese regulators have been significantly amending the Financial Instruments and Exchange Act (FIEA), similar to other jurisdictions seeking to innovate and relax regulatory requirements in order to help spur economic activity and welcome asset managers. One such amendment is the introduction of the Simplified Type 1 Financial Instruments Business Operator (FIBO) registration.

Effective May 1, 2025, the Simplified Type 1 FIBO registration sits alongside the traditional Type 1 FIBO registration and offers securities companies and asset managers a greater degree of flexibility and choice when determining how they may offer securities, including fund interests, in Japan.

The self-offering of certain securities in Japan, such as shares and bonds, is permitted by the issuer without the issuer being registered as a FIBO. Issuers of securities are often able to offer securities to prospective investors on their own without FIBO registrations. In contrast, absent an available exemption, either a registered Type 1 FIBO or a Type 2 FIBO is required to offer securities in Japan on behalf of an issuer of securities. Further, with respect to fund interests, absent an available exemption, either a registered Type 1 FIBO or a Type 2 FIBO is generally required.

The regulatory regime for securities is broadly split into the Type 1 FIBO regime and the Type 2 FIBO regime, depending on the organizational form of the particular issuer of the security. Generally, corporate shares, bonds and units in trusts are categorized as Paragraph 1 securities under the FIEA, requiring a Type 1 FIBO to market, offer, and distribute such fund interests or securities on behalf of an issuer. Partnership interests and member interests in limited liability companies are generally categorized as Paragraph 2 securities and tend to be less liquid than the Paragraph 1 securities. Absent an available exemption, the marketing, offering, and distribution of Paragraph 2 securities generally requires a Type 2 FIBO.

It should be noted that separate from the Type 1 and Type 2 FIBO registrations, before specific securities and fund interests can be offered, notifications for the particular products, such as the Securities Registration Statement, in the case of publicly offered securities, or Investment Trusts and Investment Corporations Act notifications, in the case of investment corporations or investment trusts, will also need to be filed.

Up until the amendments introducing the Simplified Type 1 FIBO became effective on May 1, 2025, there were significant differences in the regulatory burdens of the Type 1 and Type 2 FIBO registrations. The traditional Type 1 FIBO has a capital requirement of 50 million yen, a capital adequacy ratio maintenance requirement, significant personnel requirements in terms of both numbers and the experience of the personnel (including the requirement to have Securities Sales Agents registered with the Japan Securities Dealers Association (JSDA)) and membership in the Japan Investor Protection Fund.

In contrast, for a Type 2 FIBO, the capital requirement is 10 million yen and the personnel requirement may be satisfied with as few as two persons in Japan, with reduced requirements in terms of experience. There is also no capital adequacy maintenance obligation and no requirement to have a JSDA registered Securities Sales Agent.

It should be noted that the Type 1 FIBO registration is the registration required for securities broker dealers in Japan. It is not surprising that for asset managers seeking to raise capital for their privately offered funds in Japan, the registration requirements and maintenance burdens for the Type 1 FIBO often far outweigh the modest utility that such asset managers can make of the registration and only asset managers with a sufficient size and footprint in Japan have sought the traditional Type 1 FIBO registration.

Conversely, there are many offshore fund groups that have a limited presence in Japan operating with a Type 2 FIBO registration. The choice to use a partnership over a corporate or trust form fund would often be made outside of Japan typically without consideration being given to the differences in the Japan regulatory regimes, resulting in some fund groups finding their path to seeking a marketing and distribution registration in Japan significantly more challenging than other fund groups, simply due to their choice of fund entity.

The introduction of the Simplified Type 1 FIBO registration seeks to bridge the divide between the onerous traditional Type 1 FIBO and the lighter regulatory requirements associated with the Type 2 FIBO.

The requirements of the Simplified Type 1 FIBO are significantly reduced in comparison to the traditional Type 1 FIBO and include a lower capital requirement of 10 million yen in contrast to 50 million yen for the traditional Type 1 FIBO. The Simplified Type 1 also has no capital adequacy maintenance requirement. The personnel requirements have been eased and the Simplified Type 1 FIBO is expected to be managed with as few as three to four persons, rather than the five to six persons under the traditional Type 1 FIBO.

The experience requirements of the simplified Type 1 FIBO have been reduced and only require one person who has at least one year of experience with similar securities marketing and dealing activities, rather than the requirement of at least two persons with at least three years of experience with similar marketing and dealing activities under the traditional Type 1 FIBO. The Simplified Type 1 FIBO registrant is also not required to be a member of the Japan Investor Protection Fund.

While as noted above, there has been significant easing of the requirements under the Simplified Type 1, the regulators have retained a number of core requirements in common with the traditional Type 1 FIBO, including the requirement to have at least one Securities Sales Agent registered with the JSDA and the requirement to have a compliance officer.

The relaxation of the registration requirements is consistent with the narrowed scope of the Simplified Type 1 FIBO registration. Unlike the traditional Type 1 FIBO registrant, the Simplified Type 1 FIBO registrant may only offer unlisted securities. However, most fund groups are only seeking to offer their own privately offered fund interests so the narrowed scope is consistent with their intended marketing activities.

In addition, the scope of persons that the Type 1 FIBO can market and distribute securities to has been narrowed to include only Qualified Institutional Investors (such as registered financial institutions, securities companies, asset managers and trust banks), the Bank of Japan, the government of Japan and certain professional investors. While the narrowed scope of target persons exclude general investors, for many global fund groups seeking to fundraise in Japan, the narrowed scope of investors may be consistent with the target investor pool when considering the investors’ level of sophistication, size, desire, and ability to invest in offshore fund products.

As the registration and qualification requirements for the Simplified Type 1 FIBO are now closer to the requirements of the Type 2 FIBO and the scope of the Simplified Type 1 FIBO align with the needs of asset managers seeking to offer their corporate and unit trust fund products, the expectation is that there will be increased offshore asset managers pursuing the Simplified Type 1 FIBO in order to fundraise in Japan.

For offshore asset managers seeking to newly enter Japan and obtain the Simplified Type 1 FIBO, there are two additional innovative initiatives that aim to facilitate entry into Japan for such asset managers, noted below:

• It is noteworthy that many registrants will likely qualify to register using the Foreign Market Entry Office (FMEO), which will allow all registration submissions and discussions to be conducted in English. Although there have not yet been any Simplified Type 1 FIBO registrations completed, we note that registrations using the FMEO have been relatively faster and smoother than traditional registrations conducted in Japanese outside of the FMEO.
• The Financial Services Agency (FSA) continues to offer subsidies for new entrants to the Japan market seeking to obtain certain registrations, including the Simplified Type 1 FIBO registration. For the 2025 fiscal year, upon enrollment in the FSA’s subsidy program through the FSA’s new partner and official subcontractor, weConnect, the applicant will be entitled to be reimbursed for up to 15 million yen representing 70% of its establishment, start-up, and registration costs.

With these amendments and initiatives, the Japanese government continues its aim of fostering an inviting environment for foreign asset managers to encourage the growth of the Japanese financial markets.