JAPAN: Modifications to the FEFTAʼs Rules and Regulations

Monday May 11 2020

On 8^th May 2020, the Modifications to the FEFTAʼs Rules and Regulations in response to Public Comment entered into force. Full implementation starts 30 days (7 June 2020) after the entry into force of the Amended Act, Rules and Regulations.

The Foreign Exchange and Foreign Trade Act (FEFTA) revisions require overseas investors to submit a prior notification of stock purchases to the government via the BOJ (Bank of Japan) if they plan to acquire a stake of 1 percent or higher in companies in designated sectors. The previous threshold was 10%.

If the investor does not conduct any business in any designated sector, a post investment report is sufficient after the acquisition of shares.

Prior-notification for Stock Purchases

Following clearance of Prior-notification for Stock Purchases (PN-SP) by the authorities, foreign investors can purchase stocks up to the notified amount anytime within six months after submission of the PN-SP. Additional PNSP will not be required for individual transactions up to the notified amount.

Post-investment reports after stock purchases must be submitted within 45 days from the transaction settlement date, extended from 30 days before the amendment.

Post-investment report

Post-investment reports after exemption will be required when the investorʼs total shareholding reaches:

(i) 1% for the first time1/;

(ii) 3% for the first time1/; and

(iii) 10% or more for each transaction (as has been the case before the amendment).

Post-investment reports will not be required at the second and subsequent transactions reaching 1% or 3%; if shareholding goes down below 1%/3% by stock sales, and subsequently returns to or beyond 1%/3% by stock purchases, post-investment reports will not be required.

Exemption Scheme for Prior-notification for Stock Purchases (PN-SP)

Foreign Financial Institutions

Foreign financial institutions which are subject to regulations/supervisions under financial regulatory laws in Japan or other jurisdictions are eligible for “blanket exemption”. Such foreign financial institutions are:

• Securities firms
• Banks
• Insurance companies
• Asset management companies
• Trust companies
• Registered investment companies（including mutual fund and exchange-traded fund）
• High-frequency traders

Sovereign Wealth Funds and Public Pension Funds

In principle, state-owned enterprises are not eligible for the exemption from the priornotification of stock-purchases. However, SWFs that are deemed to pose no risk to national security are eligible for the regular exemption if accredited by the authorities.

Click on the link above for further information.