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FSA Newsletter No.90 2010

photo

Senior Vice Minister Shozo Azuma Greets
the 1st Disclosure System Working Group
(November 2)

photo

Senior Vice Minister Shozo Azuma (left)
and Parliamentary Secretary Takashi Wada (right)
attend the 2nd Comprehensive Exchange Study Team
(at the Ministry of Economy, Trade and Industry)
(November 9)

Table of Contents


Featured

“The Action Plan for the New Growth Strategy“ was published on December 24, 2010. It includes performing a review of regulations which are barriers to overseas real estate investment by insurance companies. In response, on December 28, 2010 this revises related notices (in effect starting the same date).

1. Background

For insurance companies' dependent business subsidiaries* which perform real estate investment and other “business performing investment for the insurance company,“ it was required that the insurance company and its fully owned subsidiaries own all of its voting rights.

It has been pointed out that this was a barrier to expanding the earnings opportunities of insurance companies. For example, it was difficult to invest jointly with other investors.

* A dependent business subsidiary of an insurance company is a subsidiary established for outsourcing of general operations (welfare, education, training, etc.) along with the insurance business performed by the insurance company.

2. Content of the Revision

Even if the “own all of its voting rights“ criteria is not met, if “(1) the insurance company and its subsidiaries hold the majority of voting rights, (2) the insurance company and its fully owned subsidiaries provided at least 50% of its total capital raised,“ then it is deemed a dependent business subsidiary of the insurance company.

Opinions were solicited on this draft notice revision from November 25 to December 14, 2010. For its results, etc., please go to the FSA web site and access Draft partially revising the “Determination of standards for whether a company carrying on a dependent business is mainly carrying it on for an insurance company or an insurance holding company or for their subsidiaries, based on provisions of the Insurance Business Act, Article 106, Paragraph 7“ - Measures taken after receipt of public comments (December 28, 2010)open new window from the Press Releases section. (Available in Japanese only)

[Topics]

The FSA is requesting that financial institutions carry out visually disabled initiatives. In order to understand the status of these initiatives, the FSA performed a questionnaire survey of each financial institution, on the state of its visually disabled friendly initiatives as of September 30, 2010. The FSA published the results on November 30.

1. Percentages of Visually Disabled Friendly ATMs Installed

Approximately 57% of all financial institution ATMs installed were visually disabled friendly, with functions such as the hand set method enabling the visually disabled to operate it by themselves.

Breakdown by Business Form

Major banks, etc.: about 83% (of these, about 81% of city banks, etc.), Trust banks: about 70%

Regional banks, etc.: about 39%, Second-tier regional banks: about 29%

Shinkin banks: about 36%, Credit unions: about 36%, Labor banks: about 42%

2. Status of Preparation of Internal Rules on Assistance in Deposit Transactions for People with Visual and Hand Disabilities

Below are the percentages of responses “finished preparation“ or “will prepare by November 30,“ regarding rules on assistance in deposit transactions in each business form of financial institution. Also, all financial institutions which prepared assistance rules replied that they have informed their employees of the content of the rules.

Breakdown by Business Form

Major banks, etc.: about 73% (about 70%)

(City banks, etc.: 100% (100%))

Trust banks: about 83% (100%)

Regional banks, etc.: 100% (100%)

Second-tier regional banks: about 95% (about 86%)

Shinkin banks: about 95% (about 92%)

Credit unions: about 87% (about 94%)

Labor banks: 100% (about 66%)

Note: Percentages in parentheses indicate the percentage of those financial institutions which prepared rules, which have prepared rules for assistance by employees

3. FSA Published the Names of Financial Institutions which Replied that they had Prepared Rules on Assistance in Deposit Transactions for Visually Disabled, or Planned to Prepare Rules by November 30

Reference: Numbers of Financial Institutions Sent the Questionnaire

  • 15 Major banks, etc.: (5 “city banks“: Mizuho Bank, Sumitomo Mitsui Banking Corporation, Bank of Tokyo-Mitsubishi UFJ, Resona Bank, Japan Post Bank), Aozora Bank, Shinsei Bank, Seven Bank, Rakuten Bank, Japan Net Bank, Sony Bank, Citibank Japan, SBI Sumishin Net Bank, ÆON BANK, Jibun Bank)
  • 6 Trust banks: (ORIX Trust and Banking Corporation, Sumitomo Trust and Banking, Chuo Mitsui Trust and Banking Company, Nomura Trust and Banking, Mizuho Trust & Banking, Mitsubishi UFJ Trust and Banking Corporation)
  • 64 Regional banks, etc.: (Members of the Regional Banks Association of Japan, Saitama Resona Bank)
  • 42 Second-tier regional banks (Banks in the Second Association of Regional Banks)
  • 272 Shinkin banks
  • 158 Credit unions
  • 13 Labor banks

*For details, please go to the FSA web site and access Results of Questionnaire Survey on Visually Disabled Friendly Initiatives (November 30, 2010)open new window from the Press Releases section. (Available in Japanese only)


Financial Strategy is positioned as one of seven strategic sectors in the New Growth Strategy Blueprint for Revitalizing Japan decided in the cabinet on June 18, 2010. “Expansion of scope of disclosures in English to encourage capital raising in Japan by foreign companies, etc.“ is part of this.

In this environment, the FSA established the Disclosure System Working Group on November 2, 2010, aiming to study from expert and technical viewpoints on development of the disclosure system based on the Financial Instruments and Exchange Act, including “expansion of scope of disclosures in English.“ Consequently, as a result of study by this working group, the “FSA Disclosure System Working Group Report - Expansion of Scope of Disclosures in English“ (hereafter, “Disclosure System Working Group Report“) was put together on December 17.

Reference: The “Action Plan for the New Growth Strategy“ was published by the FSA on December 24. For the purpose of “Establishing Japan's status as a main financial market in Asia,“ the FSA will carry out “Development of system to expand the scope of English language disclosure by foreign companies, etc.,“ and “will urgently work to submit a related bill to the Diet, and amend a series of related Cabinet Orders and Cabinet Office Ordinances as needed, with a target of FY2011.“

The main content of the FSA Disclosure System Working Group Report is as follows:

  • 1.Current English Disclosure System

    The current English disclosure system was established by amendment of the 2005 Securities and Exchange Act (currently the Financial Instruments and Exchange Act). Instead of continuous disclosure documents (annual securities reports, semiannual reports, etc.) which must be submitted by foreign companies etc., it is permitted to submit documents disclosed in English in that issuer's home country, which are similar to these continuous disclosure documents.

  • 2. Need to Review the English Disclosure System

    There is very little use of the current English disclosure system. Thus there is a need to accurately review this system, and it is appropriate to perform a review to expand the scope of disclosure documents subject to English disclosure, requirements for carrying out English disclosure, etc., while carefully considering investor protection.

  • 3.Content of Expansion of Scope of Disclosures in English

    • (1)English Disclosure of Issuance Disclosure Documents

      Continuous disclosure documents such as annual securities reports are currently subject to English disclosure. It is appropriate to also make issuance disclosure documents such as securities registration statements subject to this system, in order to enhance the convenience of English disclosure as a whole.

      In order to coordinate with investor protection, if “issuer information“ and “securities information“ each correspond to the following requirements, it is appropriate to allow submission of issuance disclosure documents in English.

      • 1)“Issuer Information“

        If securities issued by a foreign company, etc. are listed on a financial instruments exchange overseas, or if a foreign company, etc. is soliciting or doing a secondary distribution of securities in a foreign market, then if “issuer information“ of such a foreign company, etc. is disclosed in the market in English, then it is appropriate to allow English disclosure.

        Note: “Disclosed in the market“ includes a global offering with simultaneous listing on domestic and foreign financial instruments exchanges.

      • 2)“Securities Information“

        “Securities information“ is important information for investment decisions by investors. This is also important material for financial instruments business operators to fulfill their accountability in sales of financial instruments. Therefore, it is appropriate to require that they be prepared in Japanese, in accordance with the format of security registration statements, etc. as determined in Cabinet Office Ordinances etc. concerning disclosure of company information, etc.

      • 3)Treatment of Foreign Investment Trusts, etc.

        For securities corresponding to specified securities such as foreign investment trusts, if their “fund information“ or “managed assets information“, etc. is properly disclosed in English in a “foreign market,“ then making this subject to English disclosure can be considered.

    • (2)Supplemental Documents

      • 1)“Supplemental Information“

        Even for English disclosure concerning issuance disclosure documents, there are items which must be written in issuance disclosure documents in accordance with Japan's formats, thus it is appropriate to require preparation of documents (“Supplemental Information“) which show items not written in a company's reports,etc. disclosed in foreign countries. For this, it is appropriate to allow preparation in English.

      • 2)“Japanese Language Summary“

        For English disclosure of issuance disclosure documents, it is appropriate to require a “Japanese language summary“ of important items (including important items included in “Supplemental Information“).

        Considering the many opinions seeking guidelines on preparation of “Japanese language summaries,“ there is a need to urgently establish a forum for study by the FSA and other market participants, and make concrete progress.

        Note: Important items in the case of stock certificates are “risks of business, etc.,“ “analysis of financial status, business results and cash flow situation,“ and “financial statements.“

      • 3)Extraordinary Reports

        For cases which correspond to the submission reasons specified in Cabinet Office Ordinances, it is appropriate that the foreign company submits without delay an extraordinary report in English. However, it is appropriate to write in Japanese language the reasons for submitting the extraordinary report, and write the content in English.


The Outline of the FY2011 Tax Reform was decided in the Cabinet on December 16, 2010. The main items this incorporates related to the FSA include:

(1) The 10% reduced tax rate on dividends and capital gains of listed stocks, etc. is extended two years, aiming at complete economic recovery (until December 31, 2013).

* Along with this, the small investment non-taxable system , so called Japanese ISA is to be introduced in January 2014.

(2) Study a change the methods of taxing public and corporate bonds, and expanding the scope of profit/loss offset considering that there will be a 20% tax rate on dividends and capital gains of listed stocks etc. starting in 2014.

(3) Make necessary changes in tax treatment of quasi-bond beneficiary rights usable as Islamic bonds. For example:

1) Eliminate withholding income tax on dividends of quasi-bond beneficiary rights, received by overseas investors.

2) For issuance schemes of quasi-bond beneficiary rights, eliminate registration license tax and real estate acquisition tax related to buyback of trust property by fundraiser.

(4) Eliminate tax on interest and lending fee payments received by foreign financial institutions etc. in securities lending transactions.

(5) Undertake specific studies regarding international tax principles, considering issues such as current revisions in the OECD model tax treaty. Study to understand the actual situations of various industries, change from existing domestic law provisions based on “entire income principle“ to provisions according to “attributable income principle,“ and make necessary legal developments to obtain corresponding revised taxation.

(6) Expand the scope of listed stocks, etc. which can be deposited in designated accounts.

(7) Regarding income related to OTC derivative transactions, etc. (currently, aggregate taxation), same as for income related to market derivative transactions, apply 20% separate self-assessment taxation, and enable profit/loss offset of both parties and three year loss deduction carryforward.

For details, please go to the FSA web site and access Main Items Related to FSA in Outline of the FY2011 Tax Reform (December 17, 2010)open new window from the Press Releases section. (Available in Japanese only)


The FSA and Securities and Exchange Surveillance Commission (SESC) have been supervising and inspecting firms that have registered under the Financial Instruments and Exchange Act (FIEA), while investigative authorities like the police agencies have taken action against non-registered firms that involved in fraudulent businesses because of the difficulty to apply the FSA/SESC's administrative action against them.

However, increasing damages to investors in recent years due to illegal sales of unlisted stocks and fund equities by non-registered firms has been recognized as a social problem. In response to such violations of the FIEA, the FSA and SESC had been expected to make use of a petition to the court for an injunction under Article 192 of the FIEA (“an Article 192 Petition“), in addition to investigations by other authorities.

Based on this article, upon the filing of a petition from the Prime Minister, when a court finds that there is an urgent necessity and that it is appropriate and necessary for the public interest and investor protection, the court may give an order to a person who has conducted or will conduct any act in violation of the FIEA for prohibition or suspension of such act.

This article was introduced when the Securities and Exchange Act, the predecessor of the FIEA, was enacted in 1948 with reference to the U.S. securities legislation, but it had been unutilized for a long time. The 2008 FIEA amendment, however, delegated the authority for the Article 192 Petition to the SESC, which is watching illegal financial activities through market surveillance and inspections. In addition, the 2010 FIEA amendment introduced severe fines of up to 300 million yen against a corporation that violates a court injunction in order to ensure the effectiveness of the injunction. (See figure).

In response to these developments, on November 17, 2010, the SESC, for the first time ever, made an Article 192 Petition against a non-registered firm, Daikei Co., Ltd., and its senior management, which had sold, and had been selling, unlisted stocks of Seibutsu Kagku Kenkyujo Co., Ltd (see below). Tokyo District Court issued an injunction on November 26, exactly as the SESC had asked.

http://www.fsa.go.jp/sesc/news/c_2010/2010/20101118-1.htmopen new window (Article 192 Petition) (Available in Japanese only)

http://www.fsa.go.jp/sesc/news/c_2010/2010/20101129-1.htmopen new window (Court injunction) (Available in Japanese only)

On November 26, another petition for injunction was made against Seibutsu Kagku Kenkyujo Co., Ltd, which had made, and had been making, public offerings without filing Securities Registration Statements. On December 15, Kofu District Court issued an injunction, exactly as the SESC had asked, once again.

http://www.fsa.go.jp/sesc/news/c_2010/2010/20101126-2.htmopen new window (Article 192 Petition) (Available in Japanese only)

http://www.fsa.go.jp/sesc/news/c_2010/2010/20101216-1.htmopen new window (Court injunction) (Available in Japanese only)

If these companies and persons violate the injunctions, they will face the fines.

The SESC, from the viewpoints of the public interest and investor protection, shall take tough action, as appropriate, against FIEA violations such as non-registered businesses and public offerings without filing required documents, in continued and close cooperation with relevant institutions such as the FSA, Local Finance Bureaus, Consumer Affairs Agency and investigative authorities.

Investors are encouraged to be careful not to engage in any transactions with non-registered firms.

Reference:

http://www.fsa.go.jp/sesc/support/fund.htmopen new window (Warning about Malicious Fund Dealers) (Available in Japanese only)

Petition for injunction against violation of the FIEA

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