2 July 2007
3 June 2013
17 June 2013
9 December 2013
25 February 2013
6 August 2013
The past five years have seen unsurprising yet significant changes in the regulatory environment in Japan. Where previously compliance departments were - outside perhaps of the financial services industry - almost unknown, today they are the norm in Japan.
The impetus for this fundamental change can be traced to the various corporate scandals of recent years, including not only the likes of Enron, but also in Japan the Murakami Fund, Kanebo and Livedoor. If you then add to this the Japanese prime minister Shinzo Abe's stated intention to ensure Japan becomes one of the world's leading financial centres, you have a recipe for innovation and investment, but also for increased regulation and more proactive policing of the regulations.
Most recently this trend has been evidenced by the enactment of the Financial Instruments and Exchange Law (known as J-Sox due to the perceived similarities between it and the Sarbanes-Oxley Act in the US). J-Sox comes into effect for accounting periods commencing on or after 1 April 2008. However, many companies, wary of the difficulties many other companies faced in the US when Sarbanes-Oxley came into force, are already undertaking programmes to ensure they are compliant with J-Sox.
All of this is set against a context of too few Japanese lawyers, only a small number of whom are well versed in regulatory issues, a shortage of in-house compliance professionals and a relative lack of experienced regulators who, to their credit, are keen to learn from the experiences of regulators and compliance professionals in other jurisdictions.
So what does this have to do with foreign lawyers?At first sight you might be inclined to conclude that this is all a question of Japanese law and so of interest solely to Japanese lawyers, accountants and the like. However, this would be a mistake, particularly with respect to the financial services industry. Nothing demonstrates the continued frantic pace of economic globalisation better than the financial markets, which is reflected in the way financial institutions operate. Foreign lawyers have a key role to play in this continued globalisation.
It is worth noting that the remit of the head of compliance at a global financial institution in Japan will not be limited only to ensuring compliance with Japanese laws and regulations, but also to explaining how the Japanese position differs from those in other jurisdictions in which the institution operates, commonly London, New York or Hong Kong, the preferred locations for global or regional headquarters. The head of compliance will also have to ensure compliance with the laws and regulations of other jurisdictions where there is a multijurisdictional element to a particular product and/or the marketing of a product.
This is often not as straightforward as it may seem. While many laws and regulations may appear to be similar in most of the major jurisdictions, in practice the way in which they are interpreted can often be quite different. Even where the interpretation may be similar, the energy with which a particular rule is enforced by the regulator in Japan may be very different to the stance adopted in another jurisdiction.
This can lead to an awkward moment where the Japanese head of compliance has nowhere to turn when questioned by the global head of compliance and is forced to utter the immortal words, "but this is how it's done in Japan". Anyone who has lived and worked in Japan will have heard these or similar words. But will they satisfy the global head of compliance? Of course not, and nor should they.
It is at this stage that a foreign lawyer well versed in regulatory matters in other key financial centres, such as the City or Hong Kong, can be invaluable. Armed with knowledge of how the different regulatory systems work overseas, and working alongside a Japanese lawyer to ensure a full understanding of the Japanese regulations, the foreign lawyer can often help the global head of compliance to understand, in greater detail, where any differences of interpretation or practice lie, and by so doing put them at ease (if not satisfy them completely).
If the institution concerned is keen to engage in a debate with the Japanese regulator (which does not necessarily happen as frequently as it should), then being able to talk knowledgeably about how regulators approach the same issue in other financial centres can be both helpful and persuasive.
Where head office is looking to roll out a new global compliance policy on a particular issue, having a foreign lawyer set out the rationale for the policy and the events that may have led to its adoption by head office can often be helpful and can encourage buy-in at the Japanese entity. The trigger for such a change is often a scandal or a legal development in another jurisdiction.
It is inevitable that the regulators will eventually decide to inspect. Such inspections can occur either as part of a regular periodic review or could be triggered by a particular event. Either way, adverse findings resulting from regulatory inspections can have a serious negative impact on an institution's global brand and, as a result, the Japanese head of compliance, or other responsible staff member, often find reassurance in turning to foreign counsel, whose names are likely to be more familiar to the head office than that of the leading Japanese lawyer, for assistance.
There are many opportunities for foreign lawyers based in Japan to take a significant role in helping clients to navigate the Japanese regulatory environment. If Japan is to take up the prime minister's challenge of transforming Tokyo into a leading centre for financial services, such opportunities are only likely to grow in the short to medium term, as there will be more and more to learn from overseas practices and procedures and, ultimately, many more new rules and regulations to decipher.
•Peter Godwin is head of dispute resolution at Herbert Smith in Tokyo