February 6, 2008
Financial Services Agency

Public Consultation on the partial amendment of
the Guidelines for Financial Instruments Business Supervision

The Financial Services Agency (FSA) has drafted the partial amendment to the Guidelines for Financial Instruments Business Supervision and made it public.

  • 1. The items to be revised

    (1) Actions to illegally unregistered firms (Please refer to the Japanese page for details)
    Recently there is increasing number of cases of damage caused from sales of unlisted stocks by unregistered firms. Also the cases of damage by fraudulent investment schemes are increasing.
    In view of this situation, the FSA plans to add new supervisory checkpoints to the Guidelines in order to act against these illegally unregistered firms.


    Introduction of the early-warning system (Please refer to the Japanese page for details)
    On the basis of the experiences of the subprime loan problem and the recent failures of financial instruments firms, the FSA plans to introduce an early-warning system with regard to the supervision of the financial instruments business. The FSA will add new supervisory checkpoints to the Guidelines in order to strengthen its ability to monitor the financial soundness of regulated firms.
    This monitoring based on the early-warning system will be conducted flexibly based on the size and risk profile of individual financial firms in order to achieve efficiency of supervision and reduced cost for the firms monitored.


    Ensuring traceability of the securitised products (Please refer to the attached paper: available in English)
    The problems with subprime loans have made market participants aware of the complexity that securitised products carry with the risks of the underlying assets being widely diversified and the risk of the securitised product itself being unclear.
    In order to reduce this uncertainty, the first report of ''Financial Markets Strategy Team'' and ''The Plan for Strengthening the Competitiveness of Japan's Financial and Capital Markets'' stressed the need to ensure traceability of the underlying assets of securitized products. In response to these statements, the FSA plans to create new supervisory checkpoints in the part of ''the preparedness for explaining about securitized products'' of the first and second financial instruments firms in the Guidelines.
    Securitisation contributes to the efficiency of financial markets, and through such measures the FSA hopes that the fairness and transparency of capital markets are safeguarded and capital market development can continue.


    Ensuring appropriateness of business operation of the OTC derivatives transaction firms (Please refer to the Japanese page for details)
    The FSA will create new supervisory checkpoints for the risk management system of the OTC derivatives transaction firms based on the recent failure cases of the foreign exchange trading business firms and the result of the general survey conducted after the cases.
  • 2. Effective date

    It applies on the day of the revision.

Please refer to the attached paper for the details.

Comments may be sent by post, fax, or internet, and should be accompanied by the name of person and/or organization and the contact information, including the postal address of the person and/or organization, as well as the rationale for the comments.

Comments by phone are not accepted.

Comments should reach us by March 10, 2008.

Please note that the Financial Services Agency may disclose the comments received, including the name of the person and /or organization. It will not respond to any commenters individually.

Please send comments to:

Securities Business Division, Supervisory Bureau
Financial Services Agency, Government of Japan
3-2-1 Kasumigaseki, Chiyoda-ku, Tokyo 100-8967 Japan
Fax: +81-3-3506-6117
E-mail: shouken@fsa.go.jp

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