Quiz: Customer Protection

This is a draft, shown for review before publication.

3 questions to check your understanding of the chapter “Customer Protection”. Choose an answer and select “Check answer” to see the answer and explanation. You can also open “Answer and explanation” to see the answer first.

1. Question 1

   As of October 2026, under the Financial Instruments and Exchange Act (FIEA), which classification of the client determines whether the suitability principle and the provisions on providing and explaining information before a contract apply?

   1. A.Whether the client is an individual or a corporation
   2. B.Whether the client is a professional investor or another client
   3. C.Whether the contract is an OTC derivative transaction or a market derivative transaction
   4. D.Whether the client entered into two or more contracts of the same type in the previous year
   Answer and explanation

   Answer: B

   What the articles of law distinguish is whether the client is a professional investor or another client. When the counterparty is a professional investor, the FIEA's suitability principle and its provisions on providing and explaining information before a contract do not apply. Professional investors are qualified institutional investors, the State, the Bank of Japan, the Investor Protection Fund, and other corporations specified by Cabinet Office Order.

   Whether the client is an individual or a corporation does not separate the application of these two provisions. OTC derivative transactions are subject to special rules on what the pre-contract document must contain, but that is not the classification that decides whether the provisions apply. Having two or more contracts of the same type in the previous year is one of the conditions for the ongoing business relationship that appears among the exceptions to the prohibition of unsolicited solicitation. It is a separate matter from the classification that decides whether the suitability principle and the pre-contract explanation apply.

   Learn more: Suitability and the Duty to Explain

2. Question 2

   As of October 2026, which provision of the FIEA and the Act on the Provision of Financial Services and the Improvement of the Usage Environment (Financial Services Provision Act) applies even when the counterparty is a professional investor?

   1. A.The FIEA's prohibition of unsolicited solicitation
   2. B.The Financial Services Provision Act's explanation of important matters
   3. C.The FIEA's duty to confirm willingness before soliciting
   4. D.The FIEA's prohibition of giving a conclusive judgment
   Answer and explanation

   Answer: D

   Neither the FIEA nor the Financial Services Provision Act excludes professional investors from the prohibition of giving a conclusive judgment, so it applies even when the counterparty is a professional investor. The same is true of the prohibition of telling falsehoods.

   For FIEA Article 38, items 4 to 6, which cover the prohibition of unsolicited solicitation and the duty to confirm willingness before soliciting, the FIEA provides an exemption for professional investors, so they do not apply when the counterparty is a professional investor. The Financial Services Provision Act's explanation of important matters also does not apply when the counterparty is a specified client (a financial instruments seller, etc. or a professional investor under the FIEA).

   Learn more: Suitability and the Duty to Explain

3. Question 3

   As of October 2026, which of the following correctly describes the comprehensive supervisory guidelines for financial instruments business operators, etc.?

   1. A.A document listing the points of focus the Financial Services Agency (FSA) uses to check a financial institution's arrangements
   2. B.A self-regulatory rule that the Japan Securities Dealers Association imposes on its members
   3. C.A legal duty that a Cabinet Office Order sets under delegation from the FIEA
   4. D.A provision of the Order for Enforcement of the Financial Services Provision Act that covers cases such as those where no explanation is needed
   Answer and explanation

   Answer: A

   The supervisory guidelines are a document listing the points the FSA looks at when supervising financial institutions, and they are separate from the articles of law. The points of focus they list on the suitability principle, such as understanding the client's attributes and the reality of its trading and considering a solicitation beforehand, are the FSA's view, not duties in the articles of law.

   The Cabinet Office Order on Financial Instruments Business, etc. sets matters such as the contents of documents under delegation from the FIEA. It is a legal duty alongside the articles. The Japan Securities Dealers Association's rules are self-regulation, and the supervisory guidelines list them as rules to take into account in cautionary documents and similar materials. The Order for Enforcement of the Financial Services Provision Act is a legal instrument that sets matters such as specified clients and the cases where no explanation is needed, and it is separate from the supervisory guidelines.

   Learn more: Suitability and the Duty to Explain