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Revised Foreign Exchange Act Goes into Effect

Concerns that engagement on the part of foreign investors may be constrained

June 18, 2020

Yuki Kanemoto

Summary

◆On April 24 the Ministry of Finance announced the final version of the amendment to Rules and Regulations regarding the revised Foreign Exchange & Foreign Trade Act. (Major changes, including the revision of the law, are scheduled to go into effect on June 7.) Revisions were made to the Foreign Exchange & Foreign Trade Act in November last year. The criterion necessitating prior notification when a foreign investor acquires the stock of a listed company in a designated business sector was lowered to 1% of the company’s stock. At the same time, a system of exemption from prior notification was introduced.

◆According to past explanations of the Ministry of Finance, as a general rule the following conditions must be met in order to gain exemption from prior notification: (1) foreign investors (including closely related parties) shall not be appointed as officers of a company being invested in, (2) foreign investors shall not propose to the general shareholders’ meeting transfer or disposition of investee company’s business activities in the designated business sectors, and (3) foreign investors shall not access non-public information about the investee company’s technology in relation with business activities in the designated business sectors. (There are additional conditions in cases where a foreign investor other than a financial institution makes an investment in one of the core business sectors.)

◆The final version of the Rules and Regulations also requires as a condition for gaining exemption from prior notification that investment carried out by a foreign investor shall not be “for the purpose of performing actions that make continuous and stable implementation of business operations associated with designated business sectors difficult.” Cases falling under this category are expected to be rare. However, clarification of cases falling under this category would be desirable in order to avoid unnecessarily hindering engagement in investment activities on the part of foreign investors.

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