This is the first in a series of alerts from Morgan Lewis’s investment management team in Tokyo that summarize how the coronavirus (COVID-19) global pandemic impacts investment fund-related businesses in Japan. This first alert summarizes how the pandemic impacts annual business report filing requirements, particularly for financial instruments business operators and business operators conducting permitted businesses for qualified institutional investors under Article 63 of the Financial Instruments and Exchange Act.

Under the Financial Instruments and Exchange Act (FIEA), financial instruments business operators (FIBOs) and business operators conducting permitted businesses for qualified institutional investors under Article 63 of the FIEA (Article 63 filers) are required to submit an annual business report to a competent local finance authority—in most cases the Kanto Local Finance Bureau (KLFB)—within three months following the end of the fiscal year. If the end of the fiscal year was December 31, 2019, the deadline for filing of the corresponding annual business report is March 31, 2020.

KLFB’s Approach in Light of the Pandemic

There has been no official announcement from the Financial Services Agency (FSA) or KLFB to extend the filing deadline for annual business reports. KLFB continues to request that filing parties submit original documents on or before the March 31 deadline. KLFB officers have informed us that the submission of PDFs is not acceptable even if they are followed by submission of original documents when they become available. Please note, however, that regulators are aware of the COVID-19 pandemic and KLFB has indicated that regulators take the following approach:

• Even where an FIBO or Article 63 filer cannot submit an annual business report by the deadline due to circumstances caused by the pandemic (such as delaying to receive original documents), KLFB will not take action as long as the annual business report is submitted within a “reasonable period,” together with a letter explaining the reasons for delay. Currently, the regulators indicate that “by April 30” would be the “reasonable period” (and note that this could be extended depending on developments related to the pandemic).
• Even where financial figures as of December 31, 2019, are not available due to the pandemic, KLFB will not accept annual business reports with the “latest available financial figures.”
• KLFB has indicated that it expects to receive a full set of annual business report documentation when these become available together with a letter explaining the reasons for delay.

If you are not able to submit your annual business report by the due date, we recommend that you inform KLFB of the circumstances and anticipated delay as early as possible.

Financial Figures

Please also note that KLFB has recently taken a much stricter approach about the provision of financial figures. Until recently, KLFB generally accepted annual business reports with the latest financial figures available and was willing to receive updated financial information when it became available later. However, this year, even where, for technical or practical reasons, financial figures as of December 31, 2019, do not become available by March 31, 2020, KLFB will not accept an annual business report with the latest financial figures available and expects to receive these annual business reports with financial figures as of December 31 as soon as these figures are ready together with a letter explaining the reason for such delayed submission.

While many filing parties have in the past sought to delay filing of their annual business report due to the practical preference for the submission of audited financial figures, because of the change to KLFB’s expectations it may be preferable to submit unaudited financial figures in annual business reports to meet the required filing deadlines. Although the use of audited figures is “best practice” for regulatory filings, audited financial figures are not legally required for such filings.

In addition, if, for technical or practical reasons, financial figures are not available on the timing to be able to prepare and submit an annual business report by March 31, it is possible to apply to extend the deadline. Because it takes time to get approval to extend the deadline, it will not work for this year but may be considered for filing next year. 

Coronavirus COVID-19 Task Force

For our clients, we have formed a multidisciplinary Coronavirus COVID-19 Task Force to help guide you through the broad scope of legal issues brought on by this public health challenge. We also have launched a resource page to help keep you on top of developments as they unfold.