V. Legal Matters Involved in the Development of Financial System Reform

(1) It is expected that financial products and services, which transcend the traditional framework of each businesses' scope and regulations, will rapidly appear as the liberalization progresses. However, the current regulatory system, under which financial products and services are regulated by laws addressed to supervising each business category, poses such problems as limited regulatory scope and as inconsistent degree of regulation of similar products. As a result, concerns have been expressed that such problems have caused inadequate investor protections and restricted creative innovation of products.

(2) Therefore, taking necessary measures under the current regulatory system is imperative to cope with the diversification and sophistication of financial products and services. However, it will also be necessary to revise the traditional vertical regulatory framework, under which each business is regulated according to its category, and to establish horizontal rules, under which all market participants are commonly regulated, in line with such things as the introduction of various financial products, the improvement in financial institutions' risk management skills, and the spread of the principle of taking responsibility, while considering the reduction of regulatory burden.

(3) In some foreign countries, a comprehensive regulatory framework for the investment business has been adopted. For example, the UK has the Financial Services Act, and France and Germany are establishing new regulatory frameworks based on the Council Directive 93/22/EEC on investment services in the securities field. In the US, although the investor protection is separately prescribed under several securities related laws, the definition of "securities" has been extended through judicial interpretation and thus enables regulators to cover a wide range of activities, and to achieve investor protection.

(4) Regarding this subject, there were two opinions in this Committee: one argued that work should be done immediately; the other asserted that this should be addressed as a medium-range plan. In either way, we generally reached a consensus that establishing a new regulatory framework that covers a broad range of financial services (the so-called financial services law), should be considered, taking foreign examples and the current legal framework into account.


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