On March 30 2017, Japan's Financial Services Agency (JFSA) published its principles regarding customer-oriented business operations, which relate to financial business operators' fiduciary duties.
There are seven principles which FBOs should follow, summarised as follows:
(i) An FBO should develop and disclose its policies regarding customer-oriented business operations.
(ii) An FBO should pursue the best interest of its clients.
(iii) An FBO should manage conflicts of interest appropriately.
(iv) An FBO should clearly communicate details regarding its charges for services etc.
(v) An FBO should disclose important information in a comprehensible manner.
(vi) An FBO should provide services appropriate for its clients.
(vii) An FBO should establish an organisational structure etc that motivates employees appropriately.
In regard to the principles, there are three important points to note. Firstly, they explain that FBOs include 'all finance institutions etc. dealing with distributing, advising and developing financial products and asset management'. However, the term financial business operators is not specifically defined in the principles, even if those principles state they are to be adopted by all FBOs that engage in customer-oriented business operations. Therefore, the principles may apply to business operators that engage in finance-related businesses.
Secondly, adherence to the principles is not mandatory and thus FBOs will not be punished (eg subject to administrative penalties) only for non-compliance with them. Also, in order to radicate the principles, the JFSA is considering analysing the actual business operation practices of FBOs, gathering examples of best practices, and sharing such information and the results of its analysis with FBOs. To achieve this, the JFSA also plans to engage in discussions with FBOs and encourage them to fully adopt the principles set forth.
Thirdly, the JFSA encourages a principles-based approach, by asking each FBO to consider seriously what is its best practice in dealing with clients based on the expressed principles – not to simply to follow the standard industry practice – and develop competitive financial instruments and provide competitive financial services. Each FBO needs to sufficiently understand the idea and spirit of the principles and individually judge what it needs to do and how it needs to change in order to adhere to the principles. In addition, each FBO needs to develop a clear policy to realise its objective in relation to its customer-oriented business operations and be prepared to explain to its stakeholders the reasons why its operations and practices do not adhere to the principles.
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