Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Friday, December 9, 2011, from 9:40 a.m. to 10:07 a.m.)

[Opening Remarks by Minister Jimi]

As today is the last day of the current session of the Diet, I made a statement about the postal reform bills at an informal meeting of cabinet ministers. While I suppose there will be questions about that later, enacting the postal reform bills was one of the six election campaign pledges agreed upon between the Democratic Party of Japan (DPJ), the People's New Party and the Social Democratic Party before the House of Representatives election in August 2009. Therefore, successive leaders of the DPJ and the People's New Party have concluded agreements on enacting the bills. However, unfortunately, the bills have not been enacted.

Even so, this time, Prime Minister Noda and Mr. Kamei, leader of the People's New Party, agreed to work hard toward enacting the bills, and under the leadership of Chairman Akamatsu of the Special Committee on Postal Reform, the purpose of the bills were explained in the Diet for the first time in one and a half years. Yesterday, the chairman held a meeting with Mr. Takemasa, the DPJ's senior member of the committee, and Mr. Moriyama, the Liberal Democratic Party's senior member of the committee. As this was the first meeting between the committee's chairman and the senior members of the ruling and opposition parties, I have the impression that progress is being made steadily.

Today, Prime Minister Noda said at the informal meeting of cabinet ministers that DPJ Secretary-General Koshiishi will take on full responsibility for holding three-party consultations on the amendment of the bills as this is a party affair, so the consultations will likely be held behind the scenes during the recess of the Diet. That is what I wanted to make clear first of all.

[Questions & Answers]

Q.

Yesterday, 77 Bank applied for the injection of public funds under the amended Act on Special Measures for Strengthening Financial Functions. Could you offer your view on 77 Bank and your assessment of the results of the past two cases of capital injection, in which Tsukuba Bank and Sendai Bank received a total of 85 billion yen?

A.

Yesterday, we decided to make capital injection worth 20 billion yen into 77 Bank under the Act on Special Measures for Strengthening Financial Functions' provision for earthquake-related special cases. 77 Bank has the largest balance of deposits among regional banks in the Tohoku region, as you know. I hope that this bank will strive to provide credit smoothly so as to facilitate the reconstruction of businesses and lives of companies and people affected by the Great East Japan Earthquake by further strengthening its financial intermediary function through the capital injection and will also make active and consistent contributions to activities to support the restoration and reconstruction of the disaster areas.

While some financial institutions in the disaster areas have already applied for capital injection, basically, it is up to the management of private financial institutions to make a decision as to whether or not to file an application, as I have repeatedly said. If the management has concluded that it is appropriate to carry out recapitalization, I would like them to positively consider using the Act on Special Measures for Strengthening Financial Functions. The Financial Services Agency (FSA) will positively respond to requests for consultation about this matter.

Q.

Regarding Olympus, this Tuesday, the third-party investigation committee published the results of its investigation, and the following day, the Legislative Council of the Ministry of Justice published an interim proposal for the amendment of the Companies Act, which included measures to strengthen governance. Could you tell me anew about the FSA's approach to studying the reforms of legislative frameworks and schemes following the publication of the third-party committee's investigation report and the proposal for the amendment of the Companies Act?

A.

In the previous press conference, held after the publication of a third-party committee's investigation report, I received various questions from you. Generally speaking, obviously, it is very important that the audit function be adequately exercised against the management of companies if a high quality of business management is to be ensured. I am aware that the third-party committee has published the investigation report, and as is pointed out in the report, it is very regrettable from the perspective of appropriate information disclosure and the protection of investors that Olympus has engaged in the rolling-over of losses since the 1990s. It is very troubling to see domestic and foreign investors have doubts about the fairness and transparency of the Japanese markets. From that perspective, it is first and foremost important that the company exercise appropriate governance based on the investigation report and disclose accurate information as soon as possible.

Olympus has expressed an intention to submit revised securities reports for the past five years on December 14 and a quarterly report for the July-September period of this year, as I mentioned previously. In light of that, the FSA will carefully monitor how the company will deal with the situation.

Moreover, as I said previously, basically, it is important that the company accurately identifies facts and quickly discloses information, and that the administrative authorities strictly deal with this case based on law and evidence. While the investigation report includes references to the Securities and Exchange Surveillance Commission (SESC), for example, we should refrain from making specific comments on matters involving the SESC as a principle, as companies are allowed to conduct business activity as they like in a liberal society. Even so, my understanding is that when a violation of the Financial Instruments and Exchange Act is suspected, the SESC will conduct strict inspection. However, as I mentioned in the previous press conference, the SESC is an independent organization and the administrative authorities have jurisdiction over it only with regard to its budget and organization, so even the Prime Minister, the Minister for Financial Services and the FSA Commissioner are prohibited under law from ordering the SESC to do this or that. Moreover, the appointment (of the SESC's chairman and commissioners) is subject to the consent of the Diet. I believe that that is the rule on the relationship between political power and liberal economic activities. While the rule should be followed, I expect that necessary actions will be taken in this case, which has emerged as a major problem.

Q.

I am Inoshita from Toyo Keizai.

In relation to the capital injection into 77 Bank that was decided yesterday, Sendai Bank received around 30 billion yen in new capital compared with its existing capital amount of 20 billion yen. That was very significant for strengthening the financial function. However, 77 Bank will receive the very small amount of 20 billion yen in new capital compared with its existing capital amount of 300 billion yen. 77 Bank earns annual profits of 10 billion yen according to a business enhancement plan. In that sense, the scale of capital injection is somewhat different this time. Is the capital injection into 77 Bank a mostly symbolic measure?

A.

As I have repeatedly said, it is up to the management of private financial institutions to make a decision. I have high regard for 77 Bank's decision to actively use the Act on Special Measures for Strengthening Financial Functions.

Q.

77 Bank appears to have sufficient capital without using the act. Financial institutions that really lack sufficient capital should fully use the act. I am not saying that 77 Bank should not use the act.

A.

I visited three disaster-stricken prefectures. I met with the presidents of small and medium-size enterprises (SMEs) that lost factories because of the tsunami and people who lost houses for which they were still repaying loans. The double loan problem is also there. There are many people who are not repaying loans, and yet repayment cannot be put off indefinitely. Meanwhile, some people have already modified the terms of lending based on the SME Financing Facilitation Act. As regional banks are making efforts to further strengthen their financial intermediary functions through capital injection, they will have more room for extending loans to meet the various needs of companies and individuals. Strengthening the financial intermediary function means enhancing the capability to provide loans, so that will be highly necessary for the restoration and reconstruction of the disaster areas.

Q.

On December 5, proposals for the revision of the supervisory policy concerning the sale of financial instruments were presented, including a proposal to strengthen the regulation of products which pay monthly dividends or which allow customers to select currencies. Could you explain anew the background to the presentation of the proposals for the revision?

A.

I take it that you would like to know my view on the FSA's proposal to strengthen the regulation of the sale of investment trusts. Under the Annual Supervisory Policy for Financial Instruments Business Operators, etc. for Program Year 2011, as a priority supervisory issue, the FSA pays attention to whether financial instruments business operators provide appropriate explanations suited to the nature and risk profiles of products from the standpoint of customers when conducting solicitation and sales activities concerning investment trusts. As a specific action based on this supervisory policy, on December 5, the FSA initiated the public comment procedure concerning a proposal to partially revise the Comprehensive Guidelines for Supervision of Financial Instruments Business Operators, etc. in an effort to enhance systems for solicitation and sales activities concerning currency-select-type funds, which involve complex exchange risk.

I understand that the Japan Securities Dealers Association and the Investment Trusts Association have recently issued a notice intended to enhance systems for solicitation and sales activities concerning currency-select-type funds.

The FSA will make preparations for finalizing the revision while taking account of opinions collected through the public comment procedure.

As you know, the global financial situation, the conditions of currencies and the nature of exchange risk are undergoing considerable change, so we laid it down anew that risks should be appropriately explained. As a result of the crisis that started with the Greek sovereign debt risk, the conditions of currencies and finance have become unstable around the world, so exchange rate movements have been very volatile. That considerably affects currency-select-type funds that involve complex exchange risk. Therefore, as a priority supervisory issue, we have instructed financial instruments business operators to provide appropriate explanations suited to the nature and risk profile of products from the standpoint of customers.

Q.

I would like to ask for your frank opinions about the auditing firm and certified public accountants who have overlooked financial window-dressing by Olympus. Even university and high-school students with a bit of knowledge are familiar with what accountants and auditing firms do, and they are wondering why an illegal practice like this financial window-dressing has been overlooked. Frankly speaking, I am appalled by the seriousness of this problem and wondering what the auditing firm system is for and whether certified public accountants are really exercising their functions. What should be done to deal with this case?

A.

As I mentioned earlier, regarding cases that are problematic in light of the Certified Public Accountants Act, necessary investigations are conducted and strict actions are taken in accordance with laws and regulations. We will appropriately deal with this case as well. As you may know if you listen to me carefully, when asked about specific cases, I usually refrain from making comments but regarding this case, I am saying that we will appropriately deal with it. Frankly speaking, I am making fairly specific remarks.

We will take appropriate actions while keeping all such matters in mind.

Q.

What are your thoughts on the review of institutional systems or operations?

A.

Now that this incident has occurred, we will have to deal with it based on law and justice. The securities report has not been formally submitted. I believe that we must ensure that the market is fair in the broad sense as well as transparent and satisfactory for everyone.

(End)