JAPAN Law and Practice Contributed by: Daisuke Tanimoto, Etsuko Yamazaki and Miki Okuda, Anderson Mōri & Tomotsune
5. Enforcement Trends 5.1 Regulator Priorities and Enforcement Trends Under the FIEA, a person who conducts a Financial Instruments Business must be registered with the JFSA as an FIBO. Breach of such registration require - ment could result in criminal penalties (ie, imprison - ment and/or fine). In practice, it is common that the JFSA posts to its website the names of unregistered business operators and a summary of their unregis - tered business, as well as individually giving written warnings to such business operators. Notably, while a foreign business operator’s act of soliciting Japa - nese investors to enter into derivatives transactions in principle constitutes a Financial Instruments Business (unless any relevant exemption applies), a number of such warnings have been made to such unregistered foreign business operators. Approximately 50 opera - tors’ names have been posted on the JFSA’s website as unregistered operators over the latest 12 months. The trend towards enforcement is expected to con - tinue as the JFSA’s examination priority. The METI and the MAFF have also made similar warnings in the past.
4.2 Clearing Documentation For Designated Cleared Transactions to which the JSCC as a CCP offers clearing services, the JSCC establishes a form of Clearing Brokerage Agreement which must be entered into between the clearing broker and its customer as part of the JSCC’s clear - ing rule. The clearing broker and the customer may execute a side letter (or any other supplemental instru - ment) to the extent it does not conflict with the Clear - ing Brokerage Agreement. In addition, the ISDA/FIA Cleared Derivatives Execu - tion Agreement is widely used for cleared derivatives by market participants in Japan. 4.3 Opinions and Other Documentation Issues In order to recognise the effect of the close-out net - ting arrangement for the purpose of calculation of the regulatory capital of Japanese banks, it is in practice required to obtain a legal opinion. More specifically, the relevant JFSA’s Basel Q&A requires Japanese banks to confirm the existence of a reasonable written legal opinion, according to which the competent judi - cial court and authority would likely determine that the bank’s exposure will be limited to the amount which is netted pursuant to the applicable netting agreement in light of the related laws upon occurrence of any legal dispute. In addition, Japanese banks may consider obtaining a legal opinion on the validity and enforce - ability of the collateral arrangement for the purpose of taking into account the credit risk mitigation effect of the collateral arrangement when calculating the regu - latory capital.
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