Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Friday, February 24, 2012, from 9:37 a.m. to 9:50 a.m.)

[Opening Remarks by Minister Jimi]

Today, the Financial Services Agency (FSA) took administrative actions against AIJ Investment Advisors Co., Ltd. based on Article 51 and Paragraph 1, Article 52 of the Financial Instruments and Exchange Act (FIEA). AIJ Investment Advisors is an investment management company which caters mainly to pension funds. While the Securities and Exchange Surveillance Commission's (SESC's) inspection is ongoing, the FSA ordered the company today to suspend business operation for one month and make business improvement from the perspective of protecting investors.

In any case, it is very regrettable that a situation like this has arisen. For details, the Director of the Securities Business Division and other FSA officials will hold a briefing at the FSA press room from 11 a.m. today.

[Questions & Answers]

Q.

Regarding AIJ Investment Advisors, some media reports said that most of the 210 billion yen in pension funds managed by the company has been lost. Could you tell me about the amount of lost funds and the chronology of events and facts?

A.

We have taken the administrative actions (business suspension and improvement orders) from the perspective of protecting investors because some of the customers' assets have presumably been lost.

On the amount of lost funds and the cause of the loss, the FSA cannot say anything definite at the moment, as the SESC is still conducting inspection.

As for the chronology of events, the SESC informed us on February 17 that questions had arisen about the status of AIJ Investment Advisors' management of customers' assets based on discretionary investment contracts during its inspection of the company, which has been continuing since January this year. When the FSA ordered AIJ Investment Advisors on the same day to submit a report after receiving this information, the company notified us last evening that while it is examining the amount of lost funds and the cause at the moment, the circumstances are not such that it can provide explanations to investors.

This situation is deemed to constitute the reason for the FSA to take an administrative action as specified in item 8, Paragraph 1, Article 52 of the FIEA, which reads, “Regarding the operation of the investment management business, there is a fact that undermines the interests of investors,” so the FSA issued orders for the suspension of business operation for one month and for business improvement. I have been told that these orders were issued at 8:15 this morning.

Q.

You said that some of the customers' assets have been lost according to the company's explanations. Did the company say anything about the cause of the loss?

A.

The SESC is conducting inspection concerning matters like that, as I mentioned just now, so we cannot say anything definite about that at the moment.

Q.

I have one more question. There have been media reports which mentioned the amount of lost funds or which asserted that the company had provided false explanations. Will you consider filing criminal accusations?

A.

As the SESC is still conducting inspection, the FSA cannot say anything about future prospects. In any case, I believe that it is important to deal with this case calmly based on law and evidence.

Q.

I will ask you about a different subject. This weekend, the G-20 meeting will start in Mexico, and in relation to finance, the Volcker Rule is likely to be on the agenda in addition to the response to the European crisis. As the Minister for Financial Services, what kind of debate do you expect?

A.

At today's cabinet meeting, Minister of Finance Azumi's planned overseas trip was mentioned. He is going abroad to attend the G-20 meeting. As for your question, I believe it is important that when countries implement their own domestic regulatory reforms, they should hold adequate consultations with other countries so as not to produce unnecessary adverse effects on foreign financial institutions or foreign financial markets while complying with international standards.

Regarding the enforcement of the Volcker Rule, I met with Mr. Volcker, a former FRB Chairman, when I visited New York two years ago, and last year, he visited me at my office. Regarding the enforcement of the Volcker Rule, I hope that adequate coordination will be made through multilateral and bilateral consultations so as not to produce unnecessary adverse effects on foreign financial institutions or foreign financial markets.

I would like to refrain from commenting with prejudgment on the debate to be held at the meeting of G-20 finance ministers and central bank governors before this meeting starts. As this is an important meeting in which countries intensively engage in exchanges of opinions, I hope that meaningful debate will be held, including on points of debate concerning the current financial regulatory reform, with a view to stabilizing the global economic and financial conditions.

As you know, it has been pointed out that extraterritorial application of the Volcker Rule as it stands now to foreign financial groups' non-U.S. business bases could adversely affect the liquidity of the global financial market. In addition, it has been pointed out that as securities exempted from application are limited to U.S. government bonds, U.S. agency bonds and U.S. municipal bonds, the liquidity of Japanese government bonds and other sovereign bonds could decrease. It has also been pointed out that the rule could adversely affect non-U.S. banks' procurement of dollar funds because short-term currency swaps are subject to the regulation under the rule.

Last December, the FSA, together with the Bank of Japan, submitted a comment letter expressing concerns over the proposed Volcker Rule, as you know.

Q.

Regarding AIJ Investment Advisors, many pension funds entrusted asset management to the company, and I presume that a large number of pensioners are affected by this case. Could you tell me how you expect this case will affect corporate pension funds and how serious the impact will be?

A.

This could affect the financial status of pension funds, so we will closely cooperate with the Ministry of Health, Labor and Welfare, which is responsible for pension administration.

As I mentioned at the beginning, in light of this case, we will closely cooperate with the Ministry of Health, Labor and Welfare.

Q.

From the perspective of protecting investors, what do you think of the FSA's responsibility and what problems were there as you see it?

A.

This case is very regrettable, as I mentioned earlier. Although it is highly likely that some of the customers' assets managed by AIJ Investment Advisors have been lost, the facts have not yet been clarified at the moment. First of all, it is necessary to clarify facts. In any case, while it is very regrettable that a situation like this has arisen, the FSA, as well as the SESC, will take every possible effort to prevent a recurrence, although it is unclear how much of what has been reported is true.

In any case, I believe that we need to seriously accept various criticisms and deal with this case without ruling out any option.

Another thing I would like to mention is that even though we should wait for the clarification of facts as the SESC is still conducting inspection, the FSA, as the regulatory authority, intends to quickly conduct a survey targeting all companies managing customers' assets based on discretionary investment contracts. There is a total of 263 such companies, and we will conduct a survey targeting all of them while the inspection of AIJ Investment Advisors is ongoing, as I mentioned earlier.

Thank you very much.

(End)