Financial Instruments and Exchange Act
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The Financial Instruments and Exchange Act (金融商品取引法 Kin'yū shōhin torihiki-hō?), promulgated on June 14, 2006, is the main statute codifying securities law and regulating securities companies in Japan.
The law provides for:
- Registration and regulation of broker dealers and their registered representatives
- Disclosure obligations applicable to public companies, investment trusts and similar entities
- Tender offer rules
- Disclosure obligations applicable to large shareholders in public companies
- Internal controls in public companies; in this role the law is often referred to as J-SOX, a reference to the American Sarbanes-Oxley Act (SOX).
The Internal Control Committee of the Business Accounting Council of the Japanese Financial Services Agency provided final Implementation Guidance for Management Assessment and Audit of Internal Controls over Financial Reporting (ICFR) in February 2007. The Implementation Guidance provides details to Japanese companies on how to implement a Management Assessment of Internal Control over Financial Reporting as required under the Financial Instruments and Exchange Law.
The Financial Instruments and Exchange Act became effective in April 2008 for roughly 3,800 companies listed in Japan, along with their foreign subsidiaries.
Forrester Research lists the following challenges and differences between J-SOX and SOX:
- Professional services. Japan has fewer than 10% of the number of qualified accountants than the US.
- Independence of auditors. While the concept of auditor independence exists in the Japanese market similar to the US, many Japanese firms can and will rely on the influence and recommendations of their audit firms.
- Audit automation is critical. With the extreme shortage of auditors compared to US per capita numbers, this shortage will increase the requirement and necessity for process efficiency in the internal audit process and software that can support these processes.
- Support of IT governance. In the November guidance regarding the scope of the J-SOX process, it is clear that IT controls are a central point of focus for J-SOX
- Policy 52-109 – Canadian version of Sarbanes-Oxley Act
- Keeping the Promise for a Strong Economy Act (Budget Measures), 2002 – specifically for Ontario
- CLERP-9 – Australian version of the act
- Data Loss Prevention