Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Friday, March 9, 2012, from 8:34 a.m. to 8:52 a.m.)

[Opening Remarks by Minister Jimi]

Today, the cabinet decided to submit the bill to partially amend the Financial Instruments and Exchange Act, etc. to the Diet. As you know, this bill provides for the implementation of measures to establish a comprehensive exchange that handles all securities and financial products as well as commodity products in order to strengthen the international competitiveness of the Japanese market and ensure the fairness and transparency of financial instrument transactions. It also contains provisions concerning the development of regulation on over-the-counter derivatives and the revision of the monetary penalty system and insider trading regulation. The establishment of the comprehensive exchange was included in the New Growth Strategy that was adopted in 2010, as you know.

Also, I hope that this bill will be deliberated and enacted in the Diet quickly, and as for its details, the FSA staff will hold a briefing later.

In any case, although the Ministry of Agriculture, Forestry and Fisheries, and the Ministry of Economy, Trade and Industry have had jurisdiction over commodities, such as oil and agricultural products like soybeans and azuki beans, the heads of the two ministries and the Financial Services Agencies (FSA) exercised political leadership to adopt the plan to establish the comprehensive exchange.

That is all I have to say.

[Questions & Answers]

Q.

I will ask you two questions on behalf of the entire press corps. Regarding the comprehensive exchange that you mentioned now, the bill includes a provision for the integration of regulation and supervision of various products. That seems to be somewhat out of sync with recent moves being made by exchanges. Could you tell me how you intend to move toward the goal of establishing the comprehensive exchange?

A.

The report on the results of deliberation, which was announced on February 24, “requests financial instruments exchanges, commodity exchanges and traders and other relevant parties to cooperate toward the establishment of an exchange on which securities, and financial and commodity products can be traded” and “also requests them to promote broad business partnerships as part of the process of implementing the plan.” Details of specific cooperative measures and business partnerships should be decided based on the business judgment of each exchange. All the same, we will request exchanges and other relevant parties to provide necessary cooperation so that the comprehensive exchange can be established based on institutional improvements due to this legal amendment.

Q.

I will move on to the second question. Sunday, March 11 will mark the first anniversary of the Great East Japan Earthquake. According to opinion polls, a very large proportion of people say that they see no prospect of post-disaster recovery. What do you think of this situation? Also, how do you think the FSA should implement policy measures toward recovery?

A.

It will soon be one year since the Great East Japan Earthquake took place. The earthquake occurred while a session of the House of Councillors' Audit Committee was being aired live. Nearly 20,000 people were killed or left missing. It still pains my heart to think of that. This year is important as the first year of recovery. The public and private sectors will work together to steadily carry out full-fledged recovery work in the disaster-stricken areas.

I have jurisdiction over private financial institutions, so the FSA has put into force the Act on Special Measures for Strengthening Financial Functions, which contains provisions for disaster-related special measures, so as to ensure that finance firmly supports recovery efforts. Unusually for a financial act, this act provides a framework under which Deposit Insurance Corporation takes over non-performing loans that are held by Shinkin banks and credit cooperatives after the passage of a certain period of time. Therefore, this act naturally calls on the managers of financial institutions to build up capital based on their own judgment. We enacted the Act on Special Measures for Strengthening Financial Functions, which contains provisions for disaster-related special measures, with the support of all political parties and groups, and also drew up the Guidelines of Workout for Restructuring Debt Owed by Individual Debtors. In addition, prefectural industrial reconstruction organizations and Rehabilitation Support Organization for Companies Damaged by the Great East Japan Earthquake were established in order to resolve the double loan problem, which has become a major issue in the Diet. Many members of the latter organization's secretariat come from the FSA. In that sense, I believe that the FSA is making every possible effort toward restoration and recovery. The FSA will continue to do its utmost to support the recovery of the disaster-stricken areas through such activities as encouraging the active and effective use of various recovery support measures. At the same time, I would like to stress that financial institutions have provided very vigorous cooperation.

As I have mentioned on some occasions, one example is cooperation provided by the General Insurance Association of Japan, which is responsible for overseeing earthquake insurance. As I have mentioned over and over again, we requested that if one of the association's member companies recognized total loss in a case of insured damage based on aerial photographs, other companies do the same. Regardless of their commercial interests, non-life insurance companies agreed to do so, and paid insurance benefits to people and companies in the disaster-stricken areas very quickly. Earthquake insurance benefits totaling 1.2 trillion yen have been paid.

As I mentioned several times, after a general shareholders' meeting in June, the president of a major bank came to me and told me about an increase in deposits at his bank's Sendai branch. His remarks gave me the chance to get to know that earthquake insurance benefits were being paid quickly. When I asked other financial institutions about the status of deposits, I found out that all of them had seen an increase in deposits at their Sendai branches. A report issued by the Bank of Japan also showed the increase in deposits at the Sendai branches. When I asked the reason for the increase, I was told that earthquake insurance benefits totaling 1.2 trillion yen had been paid, of which 500 billion yen were paid in Miyagi Prefecture alone. I feel really sorry for disaster victims, and I can understand that people did not consider using earthquake insurance benefits to repay their double loans or making new investments for reasons such as that regional recovery plans have not yet been drawn up and that they cannot bring themselves to make a fresh start. However, at the same time, as the head of the FSA, I appreciate the fact that deposits in the earthquake-hit area have increased.

Another example is cooperation provided by the Life Insurance Association of Japan. Basically, the Ministry of Justice has jurisdiction over death certification in the case of missing persons, so the relevant director-generals of the Ministry of Justice and the FSA held many rounds of negotiations. As a result, it has been arranged that death notices concerning missing persons may be accepted through simplified procedures after the passage of three months. That is a very extraordinary arrangement. Usually, death certificates concerning people who remain missing after a disaster are issued after the passage of one year. However, nearly 20,000 people were killed or left missing in the once-in-a-millennium tsunami disaster, and many others were affected by it, so life insurance benefits totaling 150 billion yen have been paid.

Although there are more things that need to be done, the FSA will do its utmost while listening to advice and suggestions.

Q.

I would like to ask you about the case of AIJ Investment Advisors. Various problems have come to light over the two weeks since the company was ordered to suspend business operation. Could you tell me once again about what problems the FSA recognizes and what measures it will take to prevent a recurrence of cases like this?

A.

As to the case of AIJ Investment Advisors, the SESC informed us on February 17 that questions had arisen during the inspection of the company about the status of investment of customers' assets based on discretionary investment contracts. In response to this information, on the same day, February 17, the FSA took the extraordinary step of immediately ordering the company to submit a report. After receiving the company's report on February 23, the FSA issued a business suspension order at 8:15 a.m. on February 24, as I told you at a press conference. On the same day, we announced a plan to conduct a survey targeting all of the 263 companies managing customers' assets based on discretionary investment contracts and on Wednesday, February 29, we issued an order (for 265 companies) to submit reports.

The SESC has not yet accurately identified the actual status of business operation through the inspection of the company, so we will first work to finish this job. Based on the results of the inspection, we will consider what measures to take in the future from the perspective of ensuring the fairness and transparency of the market.

In any case, various things have been pointed out in the current Diet session, and the FSA and the SESC accept various criticisms sincerely and will make every possible effort to prevent a recurrence without ruling out any option, while maintaining communications with relevant government ministries and agencies, mainly the Ministry of Health, Labour and Welfare, which has jurisdiction over pensions.

Q.

A media report asserted that the FSA had been tipped off about problems related to AIJ Investment Advisors by overseas authorities and the publisher of a journal specialized in pension affairs. Could you give us facts concerning that? If there are things that are not clear now, could you tell us next week or later about the details of the tips you received and your response?

A.

I read that newspaper article this morning. At the moment, I would like to refrain from commenting on matters concerning the treatment of information received by the FSA and the SESC. However, generally speaking, the supervisory departments conduct supervision by actively using the variety of information collected through periodic reports and provided by external sources. Also, when selecting companies to be inspected, I understand that the SESC conducts analysis by actively using information provided by the supervisory departments and external sources, and that it judges inspection priority by taking comprehensive account of changes in the market environment, the positions of individual business operators and the problems faced by them.

In any case, the FSA and the SESC accept various criticisms sincerely and intend to make every possible effort to prevent a recurrence without ruling out any option, including with regard to ways of collecting and using information.

Q.

May I take it that the FSA was tipped off?

A.

I cannot comment on that. Today, I attended the cabinet meeting from 8:10 a.m., so I have not yet heard about details. However, information may become available at the session of the House of Coucillors'Audit Committee. This matter has been taken up by various media and has also been debated in the Diet in particular, so various useful proposals have been made by various Diet members. With all of those things in mind, we will strive to prevent a recurrence without ruling out any option, as I said.

Q.

As the responsibility of the supervisory authorities has been questioned, how about investigating the matter and announcing the results?

A.

Regardless of whether we should respond to specific media reports, we will strive to prevent a recurrence without ruling out any option, as I already said.

Q.

Regarding this matter, I presume that many people are wondering why the authorities have failed to take action until we have come to be confronted with this situation. Whether or not you were tipped off is a very important issue, as I see it. Although this matter concerns an individual company, wouldn't you have to reply as to whether the FSA was tipped off from the perspective of transparency of administration? What is your thought on that?

A.

We will properly report on this case later, including with regard to that point. As we are conducting administrative activity, we need to ensure appropriateness.

(End)