Press Conference by Shozo Azuma, Senior Vice Minister for Financial Services

(Excerpt)

(Wednesday, July 6, 2011, from 4:30 p.m. to 4:46 p.m.)

[Opening Remarks by Senior Vice Minister Azuma]

We have worked out a proposal for the revision of regulations related to bank sales of insurance.

In considering the revision, we have examined the current regulations from the perspective of both the need to improve convenience for users and the need to protect users and in light of the results of monitoring the status of bank sales of insurance over a three-year period, as was planned in 2007. As a result, we think that it is necessary to continue giving consideration to the protection of users although some progress has been made in efforts to prevent abusive sales practices by banks.

The proposal for revision has been worked out in light of this situation, and the key points of the revision are as follows.

First, the current framework of regulation will be maintained.

Second, of the products subject to the regulation on solicitation of borrowers, savings-like ones will be exempted from the regulation.

Furthermore, in light of the status of compliance with the measures to prevent abusive sales practices, individual regulatory measures will be revised in a manner suited to the actual circumstances. For example, a measure will be taken to ensure the effectiveness of efforts to prevent the misrecognition of insurance products as deposits.

From now on, we will quickly draft a revised version of a relevant Cabinet Office ordinance and subject it to the public comment process.

All sales personnel and agents, including banks, who undertake solicitation activity are expected to recommend insurance products best suited to customers upon the instruction or commission of insurance companies, and we believe that insurance companies are responsible for maximizing the satisfaction of customers by making use of the advantages of each sales channel. We think that if the people and companies undertaking solicitation activity are properly managed by insurance companies, the risk of abusive sales practices being employed will decline.

From that perspective, we have asked the insurance companies to make further efforts. We have also asked banks to ensure that appropriate measures to prevent abusive sales practices are implemented.

We will continue to closely monitor the status of implementation of measures to prevent abusive sales practices.

That is all I have to say.

[Questions & Answers]

Q.

You said that some insurance products will be exempted from regulation. Do you think that concerning those products, it has become meaningless or unnecessary to maintain regulation in order to prevent abusive sales practices?

A.

As we have explained to the parties concerned, small and medium-size enterprises (SMEs) in Japan depend very heavily on financial institutions for fund-raising compared with the United States and Europe. In that sense, indirect financing accounts for a substantial portion of the fund-raising in Japan. In other countries, although companies may seek loans from financial institutions in some cases, there are many other means of fund-raising. In that sense, financial institutions have an overwhelmingly superior position in Japan. From that point of view, we believe that it will be essential to maintain the basic framework of regulation with regard to the solicitation of borrowers - SMEs with a workforce of 50 employees, or less in this case - as insurance customers. It would be premature to revise the basic framework at this time.

However, when we look at individual products, we recognize that regarding savings-like products, the merits of bank sales have materialized to a certain degree and that segregation will be ensured in that respect.

Q.

Is it possible to review the regulation again some years later? Could you tell me about the timetable for future review?

A.

To put it bluntly, we doubt the usefulness of reviewing the regulation again now that we have decided to keep the basic framework unchanged in light of the follow-up on the status of compliance over a period of more than three years since all the insurance products can be sold by banks. Therefore, rather than setting a timetable for future review, we will closely monitor the situation and conduct a review when necessary.

Q.

You said that it would be premature to revise the framework with regard to companies with a workforce of 50 employees or less. I understand that you have grasped the situation based on the data accumulated over the three years and hearings. Do the data indicate that problems could still arise?

A.

As you probably heard at the hearing with relevant parties about insurance solicitation by banks, there were clear conflicts of opinions, with some people calling for a total abolition of measures to prevent abusive sales practices, others advocating easing of the regulation, and yet others insisting on maintaining the regulation at any cost. On the one hand, there is the view that no abusive practices exist, and on the other hand, it is said that abusive sales practices do exist. Therefore, we invited relevant parties to a hearing.

I live in Koto Ward, which is home to many SMEs, as I said earlier. There may be an increasing number of SME managers who can say no to insurance solicitation if they are implicitly urged to buy insurance products in exchange for receiving loans. However, I feel that there are still many SME managers who cannot say no.

Even though financial institutions say they do not employ abusive sales practices, a former banker testified that he took care to induce borrowers to purchase insurance products and we cannot disregard such testimony. In fact, officials of some relevant organizations say that there are always elements of abusive sales. The greatest issue in the current revision has been how to consider such assertions. According to the results of our own questionnaire survey, more than 15% (of employees) cannot say no if they are asked to purchase insurance products in exchange for receiving loans. That has convinced us that we must keep this part of the regulation.

That's all.

Q.

You said that savings-like products or products regarding which segregation is ensured have been exempted from regulation while acknowledging the need for measures to prevent abusive sales practices. That explanation could appear to mean that you will tolerate abusive sales practices regarding products which are suited to sales through banks, and that would apparently be a regulatory reform very convenient for insurance companies. What would you say to that?

A.

There may be various opinions. However, basically, the important thing is how customers' needs are satisfied, and as to the greatest issue of whether the data show that an appropriate segregation is ensured regarding savings-like products compared with solicitation by sales personnel while the basic framework of measures to prevent abusive sales practices is maintained, I feel that the data are such as to convince us that those products may be exempted from regulation.

Q.

To my mind, that explanation only convinces insurance companies, and as an explanation to customers, it would be somewhat beside the point. My question is whether it is the right thing to do to liberalize only products regarding which insurance companies are convinced of the appropriateness of liberalization in light of the possibility that borrowers may be forced to purchase products regardless of whether or not they are savings-like products.

FSA staff member

The ban on the sale of certain products to borrowers is specific to insurance products. This ban was introduced in light of both the special nature of banks - banks can be in a superior position - and the special nature of insurance products. As for the special nature of insurance, some products offer only a small amount of refunds, while others offer a substantial amount of refunds. Products that offer a substantial amount of refunds will not cause significant losses even if borrowers purchase such products under pressure in contravention of their needs. In light of that, we are even now applying a different level of regulation to such products. Even now, banks may sell to borrowers pension products, which are very similar in nature to savings. On the other hand, they will continue to be prohibited from selling to borrowers products that offer a very small amount of refunds, such as term insurance products. As savings-like products, such as single-premium lifetime insurance, are similar in nature to pensions, the risk of suffering losses in the event of unexpected incidents is very small. In addition, as the Senior Vice Minister said, there are certain needs for such products sold by banks. Therefore, as convenience for customers is likely to improve, those products will be exempted from regulation as a result of the revision.

(End)

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