Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Tuesday, March 6, 2012, from 8:28 a.m. to 8:44 a.m.)

[Opening Remarks by Minister Jimi]

Today, I do not have anything particular to announce.

[Questions & Answers]

Q.

Regarding the case of AIJ Investment Advisors, the Financial Services Agency is considering measures to prevent a recurrence of cases like that. Meanwhile, I understand that the FSA is planning to submit a bill to amend the Financial Instruments and Exchange Act (FIEA) to the Diet in early March. Is it possible to include measures to prevent a recurrence in that bill?

A.

Basically, I would like to refrain from commenting on Diet deliberation on the bill, as that is a matter that should be debated in the Diet.

In any case, the bill to amend the FIEA, which the FSA is planning to submit to the Diet in the current ordinary session, includes measures to strengthen the international competitiveness of the Japanese market and to ensure the fairness and transparency of financial instrument transactions, so the FSA intends to quickly draw up and submit it to the Diet.

As for the question concerning AIJ Investment Advisors, I cannot answer a hypothetical question. However, in any case, regarding how to regulate and supervise investment advisory companies, we are now making strenuous efforts to accurately grasp the actual status of AIJ Investment Advisors' business operation management through the inspection of the company. After that, we will conduct a survey targeting all companies managing customers' assets based on discretionary investment contracts, and based on the results of the survey and deliberation on future actions, such as conducting inspection, the FSA and the Securities and Exchange Surveillance Commission (SESC) will make every possible effort to take measures to prevent the recurrence of cases like this without ruling out any option while maintaining close cooperation with relevant government ministries and agencies.

Q.

Concerning the idea of rescinding the license of AIJ Investment Advisors, which was mentioned at a previous press conference, is it possible that the FSA will rescind the license before the business suspension order expires on March 23?

A.

As I said earlier, regarding the cause of this case, the SESC is still conducting inspection, so we need to wait until facts are clarified. At the moment, I cannot comment on future administrative measures.

Q.

In relation to AIJ Investment Advisors, I would like to ask you about the involvement of former officials of the Social Insurance Agency (SIA). It has been pointed out that former SIA officials were involved in this case, with the presence of their network leading to an increase in the damage caused. What is your frank opinion on that?

A.

According to media reports, the Ministry of Health, Labour and Welfare will compile a formal report on the status of the recent “amakudari” arrangement (employment of former SIA officials by investment advisory companies) by the end of March.

Various media organizations have reported on that since yesterday. The management of pension funds is a very important operation. In particular, Japan faces an aging of society, and even corporate pensions and private pensions include portions entrusted by the government to employee pension fund operators, so those pensions are a source of reassurance for the people. However, as the inspection on the cause is still ongoing, we must identify the cause through careful examination and conduct an appropriate review without being constrained by conventional fixed ideas and without ruling out any option.

I am a doctor by profession, so since 29 years ago, I have been working all along on matters related to social insurance, medical care, welfare, pensions, and nursing care. I used to serve as chairman of an association of lawmakers aiming to dismantle the SIA at the Liberal Democratic Party (LDP). Looking back at the old days, around 1947-1948, Mr. Tatsuo Ozawa, who would later become an influential LDP lawmaker in matters related to social and labor issues, was serving as a director at the Ministry of Health and Welfare, and Mr. Kunikichi Saito was serving as a director at the Ministry of Labour. Around that time, in the years immediately after the end of the war, under the occupation of GHQ, there was much controversy over the system of assigning civil servants local government jobs, in short, over the treatment of SIA civil servants. After all, the Minister of Health and Welfare had the authority over personnel and budget affairs, as people knowledgeable about those days would know. However, the authority over job duties belonged to prefectural governors. In short, insurance and pension-related jobs were performed at prefectural governments and the authority over job duties, including job performance assessment, belonged to prefectural governors, while the authority over punishment belonged to the Minister of Health and Welfare. So, there was ambiguity over the position of SIA civil servants. Of the 16,000 or so SIA employees, only around 13 were elite civil servants of the Ministry of Health and Welfare at that time.

Therefore, Mr. Bunmei Ibuki and I, as young lawmakers, loudly argued that the SIA should be made a proper national organization or its functions should be transferred entirely to local governments. That prompted the late Mr. Ryutaro Hashimoto - at that time, Mr. Tatsuo Ozawa, Mr. Kunikichi Saito, Mr. Ryutaro Hashimoto and Mr. Masami Tanaka were the Big Four regarding health and welfare-related matters - to come to Mr. Ibuki and me and tell us, “Please stop making trouble, because this system was created when those two great men (Ozawa and Saito) were directors at the Ministry of Health and Welfare and at the Ministry of Labour.”

After all, however, this issue exploded. As a matter of fact, before then, I had insisted that something must be done, as you can see if you read newspapers of those days. I served as chairman of an association of lawmakers aiming to dismantle the SIA, which comprised more than 100 members, and yet I lost my Diet seat shortly after that. I do not know well what happened later, but I read news articles about the presence of a large number of former SIA employees who were employed by employee pension fund operators after retirement. That is no surprise to me in light of the nature of the agency's organization.

However, as I said earlier, without ruling out any option, we must take this opportunity to... Now, the public invitation system was introduced (in place of “amakudari”). Formerly, there were around 1,900 employee pension fund operators, and yet I hear that the number has now decreased to 500-600. Only 10 years or so ago, there were around 1,900. As a substantial number of employee pension fund operators managing assets for major companies have returned the portion of pensions entrusted by the government, so the number has rapidly decreased. There used to be 1,800 to 1,900 employee pension fund operators, so I suppose that the amount of pension assets managed by such fund operators was much larger than now. In any case, I expect that the Ministry of Health, Labour and Welfare will make an announcement in due course. Pension funds are entrusted on the premise that our precious assets accumulated over a long time of period, whether they be employee pensions or private pensions, are appropriately managed so that we can live a comfortable life in old age. As I said earlier in the Diet, deregulation has proceeded since the 1990s, following the Japan-U.S. financial consultations. At that time, there was the so-called 5.3.3.2 regulation concerning employee pension funds (which required more than 50% of pension funds to be invested in safe assets while limiting investments in both stocks and foreign-currency assets to 30% or less, and those in real estate to 20% or less) so as to ensure investments in safe and secure assets, and this was a low-risk, low-return system. Accordingly, more than 50% had to be invested in bonds. However, the 5.3.3.2 regulation was abolished as part of the financial liberalization. Also, in the era of the Koizumi cabinet, the investment advisory business shifted from the authorization system to the registration system, so the wave of deregulation grew considerably. Deregulation increases employment opportunities and invigorates the economy, but self-responsibility, and self-discipline or ethics are very important. For example, regarding the Lehman Shock that occurred in the United States, capitalism has been affected by Puritanism since the time of its inception. In that sense, the involvement of former SIA employees in this case is very regrettable. We are working hard to identify the cause. The FSA and the SESC - although the Ministry of Health, Labour and Welfare has jurisdiction over pensions, the FSA has jurisdiction over the management of pension funds entrusted (to investment advisory companies and other financial institutions) - will make every possible effort to prevent the recurrence without ruling out any option while maintaining close communications with relevant government ministries and agencies.

Forgive me for having talked a bit too long.

Q.

Let me make sure about what you said earlier. You said that you will take advantage of this opportunity to do something about “amakudari,” or the issue of former SIA employees. By that, did you mean that you should take advantage of this opportunity to carry out fundamental reform?

A.

What I meant to say is that after the coalition government of the People's New Party and the Democratic Party of Japan was inaugurated, the public invitation system was introduced. Previously, former SIA employees obtained executive posts such as managing director and secretary-general under the “amakudari” arrangement. Now, the public invitation system is in place. The number of officials who obtained posts in that way has not increased. However, to tell the truth, there is still a large number of officials serving in posts obtained in that way before the public invitation system was introduced.

Q.

From what you said earlier about the regulation and supervision of investment advisory companies, you sounded positive about reviewing the registration system.

A.

No, you are wrong. We must consider what to do while taking account of the actual circumstances. I did not make comments with any prejudgment. While this is a very difficult problem, that is what I meant when I said that we will not rule out any option.

Q.

Concerns over pensions are spreading among the people. I would presume that some institutional revisions will take time while others can be made quickly. May I ask you once again whether you would like to include some institutional revisions in the bill to amend the FIEA that will be adopted by the cabinet on March 9?

A.

As you know, there are short-term policy tasks, medium-term tasks and long-term tasks. Therefore, we will first clarify facts without any prejudgment and identify the cause. And then, we may or may not find that some measures can be taken in the very short term to prevent the recurrence. That is why I say I will not make comments with prejudgment.

(End)