Press Conference by Tadahiro Matsushita, Minister for Financial Services

(Excerpt)

(Tuesday, September 4, 2012, from 10:25 a.m. to 10:52 a.m.)

[Opening Remarks by Minister Matsushita]

First of all, I would like to announce revisions to regulation and supervision on the investment management that will be made based on the problematic case of AIJ Investment Advisors Co., Ltd.

Regarding the AIJ case, we have expressed an intention to consider making effective revisions to regulation and supervision in relation to the problems that have been identified in the case in light of the impact on the conduct of financial affairs. Now, the Financial Services Agency (FSA) has adopted draft revisions and is announcing them.

The draft revisions include the requirement for the development of a mechanism to ensure that third-party oversight by trust banks functions effectively and a mechanism that enables pension fund associations and other customers to better detect problems through such measures as enhancing the contents of investment reports. The revisions also include the strengthening of punishment against illegal acts, such as false reports and fraudulent solicitation by discretionary investment managers, and the reform of regulation, supervision, and inspection of investment management companies.

Regarding the development of a mechanism to ensure that third-party oversight by domestic trust banks functions effectively in particular, it will be required that discretionary investment managers make arrangements to enable domestic trust banks which administer assets entrusted by pension fund associations to directly obtain information on net asset value of investment funds and audit reports, as well as net asset value indicated on investment reports which discretionary investment managers provide to customers. Domestic trust banks will be required to cross-check these items and notify the results to customers.

From the perspective of making effective revisions while taking account of the possible impact on the conduct of financial affairs, we invite public comments on the draft revisions. In light of the public comments collected, we will work out draft revisions to relevant laws and regulations and implement them as soon as preparations have been made. We will thus prevent the recurrence of cases like this.

From 1 p.m. today, the FSA staff will hold a briefing on this case as well as on the overview of the findings so far made in the second-round inquiry into discretionary investment managers.

[Questions & Answers]

Q.

I have two questions.

First, in connection with the recurrence prevention measures related to the AIJ pension asset loss case, which you explained in detail, could you offer your thoughts on your resolve to prevent the recurrence of similar cases in light of the great magnitude of the various impacts that this case has had? Also, to what degree do you expect that the prevention measures will be effective?

A.

This case came to light on February 17. The inspection started on January 23. As the details came out, the seriousness of this case became clear. I am greatly outraged at the unforgivable acts of misappropriating customers' pension assets and committing more crimes to cover up the affair.

Although we have been criticized for taking too much time to address this problem, we have drawn up recurrence prevention measures and are resolved to ensure the development of an effective mechanism of oversight. Cases like this must not occur. As the agency in charge, the FSA will appropriately deal with this case as we take it seriously that the people are very angry, as indicated by their reactions to the Diet deliberations and parliamentary testimony.

Q.

My second question concerns applications filed yesterday by Japan Post Group companies - Japan Post Bank and Japan Post Insurance - to start new services. Regarding Japan Post Bank, I suppose that housing loans will be the pillar of its business plan. However, in the housing loan business, competition among private companies is fierce, and interest rates have declined to very low levels. Under these circumstances, I suppose that there will be criticism that Japan Post Bank's entry into the market will put undue pressure on private companies. Could you tell me about your view on the start of new services?

A.

As you mentioned, Japan Post Bank and Japan Post Insurance applied for approval of plans to start new services yesterday (September 3). We certainly received their application documents. We will now hold sufficient discussions with Japan Post Bank and Japan Post Insurance from the perspective of financial supervision under the framework of the Postal Service Privatization Act while listening to the opinions of the postal privatization committee.

As to whether the filing of the applications means that the new services will be approved, we will hold sufficient discussions with Japan Post Bank and Japan Post Insurance following the receipt of the application documents yesterday. Through the discussions, we will examine, first, whether or not the new services will undermine the appropriate competitive relationship with other financial institutions that is prescribed by the amended Postal Service Privatization Act, the Banking Act, and the Insurance Business Act and, second, whether or not they are well prepared to provide the new services in an appropriate manner, and then we will judge whether or not to grant approval.

The FSA is working on this matter very conscientiously. As was mentioned in a deliberation in the Diet, the FSA has refrained from making pre-application adjustments - it has not indicated in advance which of the new services may be approved - so that this matter can be debated openly for the people to see.

The FSA will examine the applications in light of the Banking Act and the Insurance Business Act. I hear that the postal privatization committee, also known as the Nishimuro commission, will form its new opinion soon, so I, as the minister in charge, would like to ensure that the FSA's examination and the postal privatization committee's discussions will be conducted in a consistent manner so that progress can be made in this matter.

As we have received applications from the postal companies, we will examine the contents. We will check on various points of doubt and whether they have developed risk management and legal compliance systems necessary for providing the new services, as we do with regard to private financial institutions. From what I hear from working-level FSA officials, it will take some time. I have requested that the examination process be sped up as much as possible so as to set a clear direction at an early date.

I feel relieved that practical deliberation on the new services by working-level officials is starting at last based on the opinion of the postal privatization committee.

Now, believing in the capability of working-level officials, we hope that the examination process will be sped up. The new postal services must gain public confidence as services that meet the people's expectations, and the postal companies must strive to ensure stable management. At the same time, it must be ensured that the three postal companies work as one to provide universal services, including in sparsely populated regions as required by the new law. The companies will tackle these difficult challenges, and we will encourage them to overcome the challenges.

We have pledged that our first goal is to list the companies and ensure that the proceeds from the listing can be used to finance the implementation of measures to deal with the impact of the Great East Japan Earthquake, and I believe that the first step has been taken.

On October 1, Japan Post Network and Japan Post Service will be merged, representing a fresh start for the Japan Post Group under the amended Postal Service Privatization Act. Japan Post Group companies, including Japan Post Holdings, two financial companies - Japan Post Bank and Japan Post Insurance - and Japan Post Service must develop systems that enable them to work as one to meet the people's expectations, and the government will provide necessary support.

Q.

Regarding Japan Post Bank and Japan Post Insurance, business groups such as the Japanese Bankers Association (JBA) have been opposed to the postal companies' start of new services for a long time. Do you have sympathy with business groups' opposition based on the argument that the new services would put undue pressure on private companies?

A.

Of course, I have often heard various voices of concern. I have directly talked with JBA Chairman Sato about various matters. In addition, we have invited public comments before the postal privatization committee forms its opinion. I have directly communicated with people in various fields, including officials of all types of financial institutions, and this process has just ended. As a result, I am properly aware of financial institutions' various concerns.

I expect that appropriate discussions will be held as to whether or not there is a risk that the new services will undermine the appropriate competitive relationship with other financial institutions that is prescribed by the amended Postal Service Privatization Act, the Banking Act, and the Insurance Business Act. It is also very important whether or not the postal companies are well prepared to provide the new services in an appropriate manner, so we will properly examine that point as well and exchange opinions. Through this process, we will reach a conclusion on whether or not to approve the new services and to which extent they should be approved.

Q.

You said that the examination should be completed as soon as possible. Is there any deadline?

A.

A deadline has not yet been set. The examination has just started. We are not familiar with the new services. The examination period will vary depending on the specifics, but it is desirable that the examination be completed as soon as possible. Working-level officials have told me that it will take some time. While I understand that, I have requested that the examination process be sped up and a direction be set as soon as possible.

Q.

Regarding the prevention of the recurrence of problems like the AIJ case, you said earlier that trust banks, as third-party entities, will oversee the overall scheme of asset investment by discretionary investment managers. Does that mean you regard trust banks' monitoring function as very important? Also, what have you ordered or requested the financial industry to do? That is my first question.

My second question concerns the strengthening of punishment to prevent a recurrence of similar cases. I will appreciate more detailed explanations, such as whether the maximum imprisonment term for individual persons who used fraudulent means, for example, will be revised to five years from three years, and whether the fine will be raised to 5 million yen from 3 million yen.

A.

The FSA staff will hold a briefing on the details from 1 p.m., so I would like you to ask questions then. In any case, it is necessary to develop a mechanism that ensures that third-party oversight functions effectively, so I believe the role of domestic trust banks are very important.

Previously, necessary information was not passed on to third-party entities, and this situation allowed ITM Securities to form close relations with discretionary investment managers and deceive the people. ITM Securities did not pass information on to domestic trust banks or other third-party entities, and it directly engaged in various transactions with investment fund companies. There was a lack of information in that respect. As we take that problem seriously, we will deal with it appropriately.

Further details, including punishments, will be explained in the briefing that will be held from 1 p.m.

Q.

Regarding the blanket investigation that has been launched in response to the AIJ case, the results of a second-round inquiry have been summarized. What actions will you take based on the results?

A.

The FSA is appropriately sharing information on the status of the blanket investigation with the Securities and Exchange Surveillance Commission (SESC), and I understand that intensive inspection will be conducted in light of the results of the blanket investigation.

We will strive to improve our information-gathering and analysis capabilities as well as risk sensitivity, and to conduct prioritized inspection and supervision in accordance with the risks identified. The FSA will continue the investigation, including hearings with discretionary investment managers that have not been selected for further examination in the second-round inquiry, and will share information with the SESC.

Q.

I am Oshima from Kinyu Times.

Regarding Japan Post Bank's application to start new services, while the company's planned housing loan service will target individual business owners, women, and elderly people in principle, ordinary salaried workers may also become target customers. If Japan Post Bank insists that its service targets individual business owners, women, and elderly people in principle before obtaining approval and expands the service to cover other ordinary customers, it would be difficult to restrain the expansion. What are your thoughts on that?

A.

As we received the application only yesterday, I have not yet examined it. The FSA staff is now examining the details, including that point, so I suppose that we will have the opportunity to give you explanations on that point later.

Q.

What I mean is that the postal privatization committee previously had the function of conducting a review after approval has been granted but it now has only the examination function, so only the Diet has the authority to conduct a post-approval review.

A.

Naturally, ensuring that the appropriate competitive relationship with other financial institutions is not undermined will always be the most important point of debate under the law. Therefore, I expect that various reactions will occur as day-to-day operations are conducted, and the check-and-balances function may be exercised, or a review may be made. However, the application was received only yesterday, and I have not examined it, so I would like to refrain from making comments with any prejudgment.

Thank you very much.

(End)