Press Conference by Ikko Nakatsuka, Minister for Financial Services

(Excerpt)

(Friday, November 30, 2012, from 12.32 p.m. to 12:57 p.m.)

[Opening Remarks by Minister Nakatsuka]

Today, a cabinet meeting was held.

As the paper distributed to you shows, conditional approval based on the Postal Service Privatization Act has been granted to Japan Post Insurance for its new services. Regarding the eight conditions attached to the approval, the third to eight conditions concern the matters regarding which the Financial Services Agency (FSA) is continuing to examine the application for a new education insurance service based on the Insurance Business Act.

Therefore, while conditional approval based on the Postal Privatization Act was granted today, approval based on the Insurance Business Act will be granted when those conditions have been recognized by the FSA and the Ministry of Internal Affairs and Communications as having been satisfied as a result of our discussions with Japan Post Insurance. Relevant ministries and agencies share an understanding on this point.

In the future, we will encourage Japan Post Insurance to make further efforts in relation to the examination. We will make efforts to proceed, as quickly as possible, with the examination based on the Insurance Business Act with regard to the conditions precedent that have been attached to the approval based on the Postal Service Privatization Act.

The education insurance service for which conditional approval was granted is a revised version of an existing service. Cancer and other medical insurance products, which are entirely new products, are different from this case. We must examine the application for approval of such products more carefully.

For the details, the FSA staff will hold a briefing for you and take questions.

[Questions and Answers]

Q.

Although you earlier said conditions precedent have been attached, the term conditions precedent is not used in this paper. Are we correct in understanding that conditions precedent have been attached?

A.

Certainly. Unless approval is given with regard to the third to eight conditions listed here, sales of new products will not be allowed, so I characterize them as conditions precedent.

Q.

Regarding approval based on the Insurance Business Act, Minister (for postal privatization) Shimoji said that as the conditions for starting the new service on April 1 have been met, it is possible to start then, even though approval has not been given as of today. What is your opinion in that respect?

A.

As I have told you at my press conferences on several occasions, our examination has not made sufficient progress. Therefore, we attached conditions precedent to the approval based on the Postal Service Privatization Act. In the future, we will continue our examination while encouraging Japan Post Insurance to make further efforts to satisfy those conditions.

Approval based on the Insurance Business Act will be granted if the conditions precedent have been satisfied. Those conditions include one related to the large amount of insurance benefits that remain unpaid, including the life insurance benefits at maturity. Therefore, we must urge Japan Post Insurance to rebuild its benefits payment management system during our examination.

Consequently, we cannot predict when we will make the decision, so I would like to refrain from making comments. I suppose that he has mentioned April as the starting date from the standpoint of Japan Post Insurance. If so, I would like him to cooperate with our examination. I hope that Japan Post Insurance will make efforts to rebuild its payment management system.

Q.

Japan Post Bank has applied for such services as housing loans, and I understand that the postal privatization committee is examining the application. If the committee makes its decision regarding that before the general election, what are you going to do?

A.

As I have already mentioned, our examination has not made sufficient progress. It would be premature to make a decision.

The FSA has informed the privatization committee on the status of its progress in examination and made explanations as necessary. For example, we made explanations regarding Japan Post Bank’s new loan service on November 15. While the application concerns loan services in general, we have so far received explanations only with regard to housing loans and loans to listed companies. Japan Post Bank plans to provide these two types of loans on its own account. They are entirely new services. Our examination has made little progress, as there are numerous points of debate. We have informed the privatization committee that given the current progress status of our examination, it would be very premature to decide whether to grant approval. Therefore, I hope that the committee will make its decision appropriately by fully taking account of the progress status of the FSA’s examination.

Q.

Could you briefly explain once again why conditional approval based on the Postal Service Privatization Act was granted although approval based on the Insurance Business Act was not?

A.

When Japan Post Company, Japan Post Bank and Japan Post Insurance start new services, two sets of legal procedures must be followed, one based on the Postal Service Privatization Act and the other based on a relevant business act. Accordingly, the Nishimuro committee (postal privatization committee) wrote its opinion paper. Based on the opinion paper, relevant ministers held follow-up discussions on the new postal services. Party officials joined the discussions as well.

For our part, we upheld our argument until the end. We argued that approval should be granted with conditions precedent attached. This argument reflected our position that Japan Post Insurance must give consideration to the protection of policyholders as an insurance company. That is why we have made this decision.

Q.

Let me change the subject. Today, the second economic package was determined at the cabinet meeting. In addition, the third round of regulatory reform measures was determined. The reform measures related to the FSA included invigorating the securities market and banking deregulation. Although deregulation and other reform measures are included, won’t the deregulation policy change if the change of government occurs?

A.

As for the economic package, we included measures related to support for small and medium-size enterprises. In addition, regarding the invigoration of the securities market, the package calls for a study on reasonable and fair disclosure of corporate information based on the Financial Instruments and Exchange Act. Specifically, the study should be conducted in 2013, including with regard to the possibility of making reasonable revision to the disclosure requirements concerning corporate information, in light of the circumstances in other countries, including the enactment of the JOBS Act in the United States, as well as the condition of the Japanese securities market. Therefore, the FSA will conduct an appropriate study while listening to the opinions of market players.

As for the change of government, we are making efforts to prevent that, so I would like to refrain from making comments.

Q.

Let me ask you again about Japan Post. If this approval can be granted with the eight conditions attached, why can’t approval based on the Insurance Business Act be granted, too? Put another way, why has conditional approval based on the Postal Service Privatization Act been granted even though one based on the Insurance Business Act cannot be granted?

A.

Essentially, Japan Post Insurance is a private insurance company based on the Insurance Business Act. Therefore, if the company is to start a new or revised service, it needs to obtain approval based on the Insurance Business Act. Additional regulation is imposed by the Postal Service Privatization Act. Our understanding is that this law prescribes the process of transition from a state-run corporation to a private company. We have concluded that granting conditional approval is possible with regard to a law that prescribes the process of such a transition. On the other hand, the Insurance Business Act requires prior examination of insurance products before approval. Under this law, approval conditioned on the passage of the prior examination cannot be granted. That is why we have decided to make our own judgment in this respect. I think I have already made that clear.

Q.

I am Namikawa from Toyo Keizai.

Regarding Japan Post Insurance’s insurance services, am I correct in understanding that you have made this decision because you recognize that the non-payment of insurance payments is a very serious problem?

A.

The protection of policyholders should be considered as a top priority matter. Japan Post Insurance failed to send adequate notices regarding insurance claims and failed to pay insurance benefits at maturity. These problems concern the fundamentals of insurance companies. Japan Post Insurance must firmly deal with these problems.

Q.

I agree with you on that point. But at a press conference held earlier by the privatization committee, Chairman Nishimuro said that even if the committee had learned of the non-payment problem during its examination, its decision would not have been affected. That means there is a wide difference between the FSA, which recognizes this problem as a serious one, and the privatization committee, which does not. I sense that when applications for various services are filed in the future, a wide difference in recognition will arise each time. What do you think of the difference between your comments and Mr. Nishimuro’s?

A.

I would like to refrain from commenting on what Chairman Nishimuro of the privatization committee said. As I already mentioned, we regard this as a serious problem. Therefore, we have not granted approval based on the Insurance Business Act. We will continue examination based on the Insurance Business Act. When it has been confirmed that the problem has been resolved and an appropriate payment management system has been established, the conditions precedent attached to the approval based on the Postal Service Privatization Act will have been satisfied and approval based on the Insurance Business Act will be granted.

Q.

You said earlier that because cancer and other insurance services are new services, you will be more careful in your examination. That is in the case of Japan Post Insurance. Japan Post Bank has also applied for approval of new services. In the case of existing services, defects can be found by looking at past problems. However, regarding new services, it is difficult to find defects. Am I correct in understanding that that is why you will conduct careful examination?

A.

Broadly speaking, that is correct. As I mentioned earlier, providing loans on an own account is an entirely new service, so there are many points of discussion and review. As our examination has made little progress, it would be far too premature to decide whether to grant approval.

Q.

How do you view Japan Post Group in the first place? Currently, Japan Post Holdings is owned 100% by the government, and Japan Post Insurance and Japan Post Bank are a wholly-owned subsidiary of the holding company. The group is headed by Mr. Jiro Saito, a former vice minister of finance. Japan Post Bank, which holds outstanding postal savings totaling 170 trillion yen, and Japan Post Insurance, which has assets totaling nearly 100 trillion yen, are huge public financial institutions that are unusual in developed countries, although not in countries like China.

This time, Japan Post Group is trying to go ahead with its new services by exercising political influence although your examination has not made sufficient progress. How do you view this huge financial group, over which you have co-jurisdiction?

A.

As for approval, we have not granted approval based on the Insurance Business Act. I have made that clear.

I believe it is not appropriate in any country to approve new services without implementing sufficient examination. The protection of policyholders is the most important task for financial institutions, regardless of whether they are purely private, government-affiliated, or fully-owned by the government. In that sense, the important thing is to conduct appropriate examination.

Q.

Let me ask you about the fine print. According to this paper, when the conditions have been satisfied, approval based on the Insurance Business Act will be granted. Does that mean that the items of examination ― I presume you will continue strict examination based on the Insurance Business Act ― will in effect be the same as the eight items listed in this paper? Or are there any additional items?

A.

You may understand that of the eight items listed here, the third to eight items in particular concern the core of the Insurance Business Act. Therefore, if these conditions are satisfied, approval based on the Insurance Business Act will be granted. We may say that if approval based on the Insurance Business Act is granted, the conditions precedent will have been satisfied. In any case, if all of the conditions listed here are satisfied, approval based on the Insurance Business Act will be granted. Therefore, the important thing is to conduct appropriate examination.

Q.

As you mentioned earlier, there is a very serious problem with Japan Post Insurance’s handling of the payment of insurance benefits. You have been put in a situation in which you have to decide whether to grant approval for a company which faces many problems from the viewpoint of the general public. Today, you did not grant approval based on the Insurance Business Act. Don’t you think that it is abnormal that you should be forced to decide whether to grant approval for an organization facing so many problems?

A.

That is because this case is related not only to the Insurance Business Act but also to the Postal Service Privatization Act. The Postal Service Privatization Act requires us to listen to the postal privatization committee’s opinion as part of the approval process. We have made our decision after consulting with relevant cabinet ministers and the ruling parties about the opinion paper submitted by the committee in accordance with the Postal Service Privatization Act. From our standpoint as the administrative agency that has jurisdiction over the Insurance Business Act, we have upheld our argument that sales of new products should not be allowed unless the necessary conditions are satisfied.

Q.

I will move on to quite a different topic. The U.S. Federal Reserve (Fed) has revealed a plan to require the U.S. operations of foreign banks to increase their capital. A Fed governor mentioned the plan in a speech. It has not been announced to which banks this requirement will be applied, but if it is applied to Japanese banks, they will have to increase their capital in the United States and incur additional costs. What do you think of the requirement? Governor Tarullo said the requirement is intended to help to stabilize the U.S. financial system. Is it possible that Japan will consider introducing a similar requirement for a similar reason?

A.

I am aware of a media report about what you mentioned. The Dodd-Frank Act, which was enacted in 2010, calls for the establishment of a standard for the soundness of foreign financial institutions, if I remember correctly.

As you mentioned, the details of the standard are not yet clear, so I would like to refrain from making comments. As for the impact on Japanese banks, too, I would like to refrain from making comments.

Q.

Is it possible that Japan will consider introducing a similar requirement?

A.

Are you asking about what Japan will do?

Now, the Financial System Council is holding discussions on the regulation of foreign financial institutions’ Japanese branches and subsidiaries. Regardless of whether such a requirement is being discussed, I hope that discussions will be held on a broad range of matters.

Thank you very much.

(End)