Press Conference by Yuji Yamamoto, Minister for Financial Services

(Excerpt)

May 18, 2007

Q.

At a meeting of the Group of Eight finance ministers in Germany this weekend, regulations on hedge funds are expected to become one of the major topics again. Seemingly, these countries have not necessarily agreed on how these funds should be regulated. You are the minister in charge of such regulations in Japan. Will you give your views about the key points regarding discussions about hedge fund regulations?

A.

I heard Germany will make a proposal on hedge fund regulations at the meeting of G-8 finance ministers in Germany. Regarding hedge funds, stakeholders in major markets have taken multi-faceted measures to protect investors, secure market fairness and transparency and avoid any systemic risks. I would like to watch discussions at the G-8 meeting on May 18 including those on assessment of these measures. Based on the three objectives, the Financial Services Agency will develop regulations on selling or soliciting of hedge fund shares, investment operations and information disclosure through the Financial Products Exchange Law to protect investors and secure market fairness and transparency. Through inspection and regulation of financial institutions that have invested in or provided loans to hedge funds, the FSA has also called for appropriate risk management, taking an indirect approach with prevention of systemic risks in mind. From such perspectives, the FSA desires to call for orderly behavior at hedge funds and receive reports from hedge funds operating in Japan on their locations and other matters, taking administrative actions designed to protect investors in these funds as much as possible.

Q.

Regarding electronic money, private companies in distribution and transportation industries are introducing e-money systems. There are complaints that a legal framework is not sufficient for protection of e-money users. How will the FSA have to deal with this issue? Would you discuss a schedule if any?

A.

Integrated circuit e-money is subject to the prepaid certificate regulation law. The equivalent to half of the unspent amount is deposited to help protect users. However, network-based e-money, which is used for Internet transactions without certificates, is not subject to the prepaid certificate regulation law. The FSA created a ''working group on information technology innovation and financial systems'' at the Financial System Council to put in order problems regarding electronic payments services. In April last year, the working group's chair released a memo spelling out problems to be addressed. Specifically, three major problems were cited. The first problem was how to protect users when e-money service providers go bankrupt. The second was how to share responsibilities between parties to electronic payments services. The third was a desirable system for electronic payments services. Regarding these problems, we believe that it is important to consider how best to secure diversified and stable payments services and appropriately protect users while taking care not to interrupt development of services meeting IT innovations. At present, we have no plan to immediately amend the prepaid certificate regulation law or any other law. Since these problems are linked to various issues, we would like to steadily consider each issue.

(End)