Provisional translation

Press Conference by FSA Commissioner Takafumi Sato


May 25, 2009

[Opening Remarks by FSA Commissioner Sato]

I do not have any statements to make.

[Questions and Answers]


Regarding the new type of influenza, infection has spread in Japan, with cases of infection found last week in the Kanto region too, and it has been pointed out that an economic impact is starting to appear, for example in the tourism industry. In relation to the outbreak of influenza, have you identified cases in which financial institutions refused to provide loans using slumping sales as an excuse? Also, could you tell us about the purpose of a notice concerning the facilitation of financing that the FSA issued last weekend?


As you know, the FSA has already requested financial institutions to make preparations to ensure business continuity and consider ways to reduce the risk of infection following the outbreak of influenza. In the meantime, according to media reports, an impact of the outbreak of influenza on corporate activity has started to appear amid the difficult economic situation, with hotels in some regions experiencing an increase in cancellations of reservations.

The FSA has already been encouraging financial institutions to properly and actively exercise their financial intermediary function. In light of this new development, on May 22, the FSA renewed the request for financial institutions to facilitate financing for companies, including small and medium-size enterprises. The FSA will continue collecting information and take appropriate actions based on the government's policy.

At the moment, we are not aware of any specific case of a financial institution acting in an appropriate manner in relation to the provision of loans to companies whose business activity has been affected by the outbreak of the new type of influenza. However, we will continue efforts to keep track of the actual situation carefully.


Last week, the president and other staff members of a real estate company were arrested for illegally obtaining a loan from Sumitomo Mitsui Banking Corp. based on falsified documents related to a fictitious company. How does the FSA view the fact that a bank, whose screening function should enable it to identify a fictitious company, failed to do so while a bank employee was reportedly involved in the case? What administrative action is the FSA considering at the moment?


I am aware that the president and other staff members of a real estate company were arrested last week for illegally obtaining a loan from Sumitomo Mitsui Banking Corp. I would like to refrain from commenting on what administrative action to take against an individual financial institution. However, generally speaking, it is important that financial institutions not only establish an appropriate system for screening related to the provision of credit from the viewpoint of risk management, but also establish an appropriate internal control system that would not invite any public criticism in light of the public nature of their business, and manage business operations appropriately.

The FSA will take appropriate actions in accordance with laws and regulations if it recognizes a problem with a financial institution's legal compliance system or internal compliance system.


When Bank of Tokyo-Mitsubishi UFJ announced its financial results last week, the bank revealed ''earnings targets'' for the current fiscal year, rather than disclosing forecasts as it did previously. While the issuance of earnings forecasts may not be legally obligatory, I believe that such forecasts provide important clues for investors to judge the company's future prospects. Don't you think that this will have adverse effects on companies' stances on information disclosure? Some securities companies apparently refrain from providing forecasts too. Is it possible that this trend will grow?


Last Tuesday, May 19, Mitsubishi UFJ Financial Group announced the financial results for the fiscal year ended in March 2009. In making the announcement, it changed the disclosure method, providing ''earnings targets,'' with regard to the fiscal year ending March 2010, instead of disclosing ''earnings forecasts'' as it had done previously.

I would like to refrain from commenting on a matter concerning an individual exchange-listed company. However, generally speaking, the disclosure of earnings forecasts is regarded as a source of useful information for individual investors, as you pointed out. So, it is believed to be desirable that companies take as positive a stance as possible on disclosure. On the other hand, it is difficult in some cases to compile accurate forecasts because of the market condition or changes in the business environment. I understand that the rules set by exchanges allow the omission of the disclosure of earnings forecasts in such cases.


Last week, a recommendation was made in relation to an insider trading case involving a certified public accountant. This is the second insider trading case involving a certified public accountant, following the one that involved an accountant at Ernst & Young ShinNihon LLC. What do you think of the fact that a certified public accountant, from whom a high level of ethics is required, was involved in a case like this? It has been recognized that an employee of Nomura Securities leaked M&A-related information. Another employee of the company was previously involved in an insider trading case. What do you think of the fact that a similar incident occurred again at the same division of the same company? Also, about what points will the FSA question Nomura Securities and what actions will it take?


Regarding the involvement of a certified public accountant in an insider trading case, the Certified Public Accountants Act stipulates, as you know, that ''A certified public accountant shall not commit any act which will injure the credibility of certified public accountants or which will disgrace certified public accountants as a whole.'' We will take appropriate actions if there is any problem that may violate the Certified Public Accountants Act.

As for the allegation that an employee of Nomura Securities passed on insider information, it is important that securities companies, which play a public role as a financial intermediary, establish an adequate internal control system and manage business operations properly. From this viewpoint, it is regrettable that a problem like this has occurred. Of course, it is also regrettable that a certified public account was involved in the insider trading case.

On July 3 last year, the FSA issued an order for business improvement against Nomura Securities following the arrest and indictment of a former employee of the company in an insider trading case. Based on this order, the company submitted a report concerning measures to improve its internal control system, and the FSA is closely watching how the company is implementing those measures.

I understand that as Nomura Securities issued a statement to the effect that the company will thoroughly implement the prevention measures that it adopted last year, the FSA will continue to closely watch how the company will implement them.


On June 1, the FSA will relax the firewall regulation. Regarding the firewall regulation, the economic environment, or I should say the environment surrounding the financial industry, has changed compared with when the reform of the firewall regulation was debated. U.S. investment banks have turned into bank holding companies. While Japanese banks sought to engage in securities businesses, U.S. securities companies moved toward the banking business. As a result, the Japanese reform seems to be outdated or disconnected with reality, given the changes in the economic environment, and yet reform should be pursued. Could you tell us what you would like to achieve through the reform of the firewall regulation?


We do not think that the institutional reform or the construction of the framework is outdated.

You pointed out that the structure of business entities is transforming with regard to the securities business, or I should say the investment banking business, and traditional commercial banking. However, apart from the issue of how a financial institution engaging in the financial intermediary business should be structured, there are various channels of financial intermediation, including both direct financing, which is part of the investment banking business, and indirect financing, which mainly comprises deposit-taking and the lending of funds.

For the moment, there is some fluidity as to what form of financial intermediary should undertake what kind of business. In short, there are both financial intermediary channels based on direct financing and those based on indirect financing. At the same time, from the standpoint of users, who have fund needs, and investors, who have surplus funds, it is important that a variety of options are available. Based on this basic recognition, it is essential that the conflict of interest is managed if the same financial intermediary group is to provide financial services in the fields of both direct and indirect financing. If the conflict of interest is properly managed, fund raisers can receive a variety of comprehensive services. Also, this will lead to an improvement in the quality of services by enabling choice from among a variety of fund-raising options.

If the framework of the firewall regulation changes as is intended - we aim to make it evolve into a better framework - I expect that it will lead to an improvement in the quality of financial intermediary services. Therefore, we hope that individual financial groups will establish internal control systems and manage business operations so as to manage the conflict of interest in light of the purpose of the principles-based regulation, since various types of conflicts of interest could occur.


Today, North Korea conducted a nuclear test. I understand that the FSA is involved in some of the measures the Japanese government has taken against North Korea, such as monitoring remittances to the country. Could you provide information in this regard?


As you know, the Security Council of Japan will hold a meeting from 5:30 p.m. today, and I understand that this matter will be discussed by relevant cabinet ministers.

In any case, some measures have already been taken, and we will take appropriate actions in line with the government's policy.


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