On October 12, 2012, in response to the recent AIJ scandal, the Financial Services Agency of Japan (the “Japanese FSA”) published a draft amendment to certain rules (“Draft Rules”) intended to revamp the regulation and supervision of discretionary advisory businesses, particularly with respect to employees’ pension fund (kōsei nenkin kikin) clients.
The Draft Rules effectively impose an audit requirement on funds into which investment managers invest client assets, and require the investment manager to establish processes for independent third party verification of fund NAV, except when clients are specified investors (tokutei tōshika). The Draft Rules also expand disclosure obligations for discretionary investment managers and the scope of supervision by the Japanese FSA. The Draft Rules were open to public comments until November 12, 2012.
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(1) Overview of Proposed Amendments
In advance of the publication of the Draft Rules, in September 2012, the Japanese FSA announced the outline of a proposal to amend laws and regulations aimed at achieving the following:
• enhanced fund monitoring by securing effective checking by Japanese trust banks and other third parties
• enhanced disclosure to investment management clients (especially pension funds)
• increased criminal penalties for violation of investment management regulations
• enhanced regulations applicable to investment managers
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