JAPAN Law and Practice Contributed by: Daisuke Tanimoto, Etsuko Yamazaki and Miki Okuda, Anderson Mōri & Tomotsune
requiring FIBOs etc to deliver specific paper docu - ments to requiring FIBOs etc to disclose important information regarding the substance of the transac - tions to the customers. In other words, while FIBOs are no longer required to disclose the information relating to the transactions to customers in paper form, they are required to ensure that they have pro - vided sufficient explanations and information to the customers so that the customers are able to under - stand the substance of the transactions. Prohibition of loss compensation FIBOs etc are prohibited from providing loss com - pensation, additional profits or special benefits to a customer in connection with derivatives transactions in violation of the FIEA. Regulations under the Act on Provision of Financial Services Under the Act on Provision of Financial Services and Maintenance of Usage Environment (Act No 101 of 2000, as amended, APFSMUE), the seller of a financial instrument has a duty to explain important matters at the point of, or before, the sale of financial instru - ments. A breach of this duty gives rise to a private cause of action, with the burden of proof on the seller to prove the amount of damage (ie, the loss incurred by a customer is presumed to be the loss due to the failure of the duty). It is also prohibited to provide con - clusive evaluation on uncertain matters or misleading information to customers. These regulations can be applied to derivatives transactions. 3.1.7 Commercial End Users As we described in 2.6 Exemptions, Non-derivative Products and Spot Transactions , exemptions from the registration requirement under the FIEA or from the licensing requirement under the CFEA are available in cases where counterparties are limited to certain eligible investors. In addition, FIBOs are exempt from compliance with some of the key provisions on conduct in the FIEA (such as the principle of suitability, the requirement to deliver written statutory disclosure documents to cus - tomers, the prohibition of solicitation without consent, and the advertisement regulations) where the coun - terparties are professional investors. For this purpose,
professional investors include qualified institutional investors (QIIs), listed stock corporations, stock cor - porations with stated capital of at least JPY500 mil - lion, special purpose companies established pursuant to the Act on Securitisation of Assets of Japan (known as TMKs) and foreign corporations. Individuals with trading experience of at least one year, and net and invested assets of at least JPY300 million, as well as other corporations, may apply to change their status from general investors to professional investors. Further, the obligation under the APFSMUE to explain important matters as mentioned in 3.1.6 Business Conduct would not be applicable where the counter - parties are professional investors. 3.2 Local Derivatives are regulated at the level of national laws, although certain supervisory functions are delegated by the national regulators (ie, the JFSA, METI and MAFF) to the Local Finance Bureau; the Regional Bureau of Economy, Trade and Industry; and the Regional Agricultural Administration Offices. 3.3 Self-Regulatory Organisations, Independent Authorities, and Exchanges The following self-regulatory organisations operate in Japan: • Japan Securities Dealers Association (JSDA) for Type I FIBOs and Registered Financial Institutions regulated under the FIEA; • Financial Futures Association of Japan (FFAJ) for FX and interest rate derivatives (including OTC binary option derivatives) regulated under the FIEA; • Japan Commodity Futures Industry Association (JCFIA) for commodity derivatives regulated under the CFEA; and • Japan Virtual and Crypto assets Exchange Asso - ciation (JVCEA) for crypto-asset derivatives regu - lated under the FIEA. These self-regulatory organisations are subject to the national-level oversight by the JFSA, the METI and/or the MAFF (as applicable).
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