Press Conference by Tadahiro Matsushita, Minister for Financial Services

(Excerpt)

(Tuesday, June 19, 2012, from 8:15 a.m. to 8:29 a.m.)

[Opening Remarks by Minister Matsushita]

It was reported that Crown Prince Naruhito will visit Saudi Arabia. Saudi Crown Prince Naif passed away, so Prince Naruhito will leave Japan on June 20 and return home June 21, which is a very tight schedule.

Relevant ministers reported on white papers concerning disaster prevention and equal opportunity for men and women. Those were the main topics. Please ask questions.

[Questions & Answers]

Q.

In a Greek general election held on Sunday (June 17), the pro-austerity parties won the majority of seats, so it appears that a financial crisis has been averted for the moment. How do you expect the election results will affect Japan's financial system?

A.

As I assume you know the outcome of the Greek re-election held on June 17, I will not repeat that. I hope that in response to the outcome, the next Greek government will implement necessary fiscal and structural reforms while maintaining communications with the EU.

Japan's financial system as a whole is sound and stable. The amount of credit provided by Japanese financial institutions to Greek borrowers is small, so the direct impact will likely be limited. In addition, the Financial Services Agency (FSA) is routinely making efforts to grasp risks faced by financial institutions by obtaining monitoring data and holding hearings on the status of stress tests.

In any case, the FSA will continue to monitor the impact of the European problems on the financial system and financial institutions with strong interest.

Q.

Regarding the political situation, the Liberal Democratic Party, the New Komeito and the Democratic Party of Japan (DPJ) agreed on the modification of the bill for a consumption tax hike, paving the way for the passage of the bill through the House of Representatives. As a cabinet member, what would you say to that?

A.

I was keeping watch on how debate involving the DPJ, our ruling coalition partner, will evolve. Although I am not aware of details of the debate, I appreciate Prime Minister Noda's resolve to stake his political life on this matter and I think supporting him is my job as the minister for financial services, as the minister for postal privatization, and as a cabinet member. I hope that this bill will be properly debated in the Diet, agreed upon and enacted.

Q.

In relation to the loss of pension assets at AIJ Investment Advisors, the Securities and Exchange Surveillance Commission (SESC) has already been conducting criminal investigation and it was reported today that the Metropolitan Police Department will arrest the company's president. As the minister for financial services, what do you expect of the criminal investigation?

A.

I learned of that from a newspaper report this morning. I would like to refrain from making comments as this concerns the investigative authorities' investigation.

Generally speaking, I understand that the SESC examines illegal cases to the best of its ability in cooperation with the investigative authorities when it deems it necessary to do so during its own investigation. AIJ Investment Advisors and others concerned are under criminal investigation on suspicion of having committed fraud in relation to the conclusion of discretionary investment contracts under the Financial Instruments and Exchange Act. We will make strenuous efforts to identify facts.

Q.

In relation to the previous question, could you summarize the AIJ scandal as it stands now? What are the problems from the perspective of financial administration and what should be improved?

A.

This matter has been debated in the Diet day after day. The key point is what measures should be taken to prevent a similar scandal. Now, we are trying to identify and analyze the problems in this case. While waiting for the results of this effort, we will work on measures to prevent a recurrence.

As for the reinforcement of the checks against illegal practices, I think it is necessary to strengthen punishment against false reporting and fraudulent solicitation by companies managing customers' assets under discretionary investment contracts. It is also necessary to establish a system that enables third-party entities such as domestic trust banks to conduct effective checks, a function which was lacking in this case. Such checks cannot be conducted unless there is a system that gives domestic third-party entities such as trust banks direct access to data on prices of funds and audit reports. It is also necessary to establish a system that enables customers such as pension fund associations to detect problems at an early stage. For that purpose, the contents of investment reports should be improved so as to facilitate understanding.

In any case, we will seek quick results and promptly consider effective measures to prevent a recurrence while listening to the opinions of relevant parties and maintaining close cooperation with relevant ministries and agencies.

Q.

In relation to insider trading cases, Nomura Securities will announce the results of an investigation by outside lawyers within this month. To what points do you attach the greatest importance? There has been a media report that top managers will resign to take responsibility for the insider trading cases. Will their manner of taking responsibility be one of the key points?

A.

I am aware that the company is scheduled to publish a report on investigation by outside lawyers by the end of June. However, I would like to refrain from commenting on a specific securities company's activity.

Generally speaking, from the perspective of preventing illegal trading such as insider trading, it is necessary to strictly manage corporate information relating to public offering of new shares and other matters, and develop effective internal control systems. The most important thing is that employees at securities companies perform their jobs with a high level of compliance awareness and professional ethics. A select group of employees handling highly confidential information must meet such qualification.

Generally speaking, if a problem is recognized regarding a securities company's business operation, we will take strict action in accordance with laws and regulations after checking how the company recognizes and responds to the problem.

Q.

Could you tell me once again how you feel about the expectation that the president of a company under your jurisdiction will be arrested by police for having committed an illegal act? While you earlier mentioned three measures to prevent the recurrence, what measures do you think the administrative authorities should take to detect illegal practices like this?

A.

I learned of the expected arrest from a newspaper report today. It is necessary to examine the measures that have so far been taken and identify problems. As we are trying to do so, we must work on the measures that I mentioned earlier in light of the results of this effort.

Q.

I would also like to ask a question concerning IFRS (International Financial Reporting Standards). Last week, an interim report was issued, so I would like you to tell me once again about your thinking. Am I correct in understanding that for the moment, you intend to continue voluntary application?

A.

The Business Accounting Council held a meeting. Mandatory application of IFRS has not been decided by the council. Regarding the application of IFRS, an interim report summarizing the points of debate was written. I understand that a certain consensus has been reached on such points as: the separate treatment of consolidated and non-consolidated financial statements, which refers to limiting the application of IFRS to consolidated financial statements; the exemption of small and medium-size enterprises from IFRS; and the expansion of voluntary application.

However, regarding other points of debate, including whether or not to introduce mandatory application, a conclusion has not been reached, so further debate should be conducted to delve deeper into those points.

Therefore, as further deliberation will be conducted regarding the future application of IFRS, it has not been decided to introduce mandatory application.

Q.

In discussion being held at the G-20 Summit (summit meeting of the 20 major countries and regions), the idea of forming a banking union has apparently been suggested by some members. What have you heard about the most recent discussion and what is your assessment?

A.

The discussion is being held at this moment. I would like to wait for the results of the discussion. In any case, the world's 20 major countries have gathered to discuss the international financial and economic situations, including the European problems, so I will keep a close watch on the discussion.

(End)