The suitability principle is set out in Article 40, item 1 of the Financial Instruments and Exchange Act1. In principle, it does not apply when the party being solicited is a professional investor (such as a qualified institutional investor, the national government, or the Bank of Japan). It does apply in cases specified by Cabinet Office Order as likely to harm the public interest or the protection of professional investors2. Financial institutions are required to build a client management framework that captures client attributes and how clients actually trade, and to consider before soliciting whether there is a reasonable basis for a product to suit the client's attributes3.

This site writes "suitability principle" for the legal rule and "suitability checks" for the procedure in which a financial institution collects client information and compares it against its internal criteria.

Notes

  1. "金融商品取引法" (Financial Instruments and Exchange Act, in Japanese; English translation: Japanese Law Translation), Article 40, item 1. ↩

  2. The same Act, Article 45, main clause and item 1, and Article 2, paragraph 31. ↩

  3. Financial Services Agency, "金融商品取引業者等向けの総合的な監督指針" (Comprehensive Guidelines for Supervision of Financial Instruments Business Operators, etc.), III-2-3-2-1 "適合性原則" (Principle of suitability), preamble and (1)② and ③ (pages 51–53) (in Japanese). ↩