Side Businesses of Discretionary Investment Managers in Japan.

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Side Businesses of Discretionary Investment Managers in Japan.

By Tomoko Fuminaga

Associate, White & Case-Kandabashi Law Office, Tokyo, Japan1

A variety of factors have converged in recent years to cause discretionary investment managers ("DIMs") to need to provide a variety of ancillary services to their clients, particularly their international clients. These factors have included (i) an overall consolidation in the Japanese asset management industry; (ii) a significant increase in the assets being allocated to alternative investment managers by institutional investors and pension funds; and (iii) the desire of DIMs to use the provision of value-added services to differentiate their products from those of their competitors. Many of these requested auxiliary services were not contemplated as being within the normal scope of a DIM's business when Japan's Investment Advisory Business Law2 (the "IABL") was enacted in 1986. As a result, the undertaking of such activities by DIMs has inevitably given rise to the question of whether the DIM is engaged in a business not within the scope of its license and the possibility of the imposition of sanctions by Financial Services Agency ("FSA") inspectors.

This Article explores the types of ancillary ("side") businesses which have been registered by DIMs in Japan with the competent regional finance bureaus in order to ensure that they remain in compliance with the IABL. In the process of reviewing these registered side businesses, the structure and intent of the relevant licensing and registration3 provisions of the IABL are also explored.

I. Background

In Japan, the provision of discretionary investment management serv...

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