Joint Lectures with Hiroshima University
 ''System and Theory of Financial Inspection and Supervision''


Since the Financial System Council commented on the necessity of ''consumer education'' in the financial field in its June 2000 report, the Financial Services Agency (FSA) has been working eagerly to promote financial and economic education. Having included ''Expansion of financial and economic education'' in the Program for Further Financial Reform as well, we have stepped up our efforts in this area in accordance with the Program's direction by, among other measures, establishing in March of this year the ''Financial and Economic Education Advisory Council,'' a private panel serving the Minister.
In the meantime, Hiroshima University, which last year started offering a joint course with the Bank of Japan in the Graduate School of Social Sciences on the subject of ''Financial Risk Management Studies,'' decided to offer a new joint course with the FSA in order to further broaden the School's system of education and research and to develop talented people who are capable of serving immediately in the work force in the field of ''financial and capital market analysis.''
The FSA started lectures on October 8 of this year on the subject of ''System and Theory of Financial Inspection and Supervision: Basic Framework and Approaches in Financial Administration'' as part of the joint course in the Finance Program (a program designed for working people) in the Socioeconomic System major in the University's Graduate School of Social Sciences.
The lectures have been developed to teach the basic framework and approaches in financial administration to those who either have experience in financial services, or have taken a course in the basic theory of finance and are interested in working in financial services. Particular emphasis is placed on several topics that carry significance in financial administration: focusing on the points of how to stabilize the financial system, secure sound operations of financial institutions and facilitate financial functions, in keeping with the system of, and approaches taken in financial inspection and supervision; the lectures are scheduled to be given with model examples presented on an as-required basis.
With the start of such joint lectures as just one example, the FSA is committed to further promoting financial and economic education in the future.

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Survey on the Counterfeit ATM Card Problem


The Financial Services Agency released on October 14 a report on the counterfeit ATM card fraud cases that occurred between October 2004 and March 2005. Please refer to the report released on February 22, 2005 for fraud cases that occurred up to September 2004. The important findings in this survey are highlighted below. Please refer to these for fraud prevention.
 
<Fraud Background>
  • Most victims say golf clubhouses are the most probable location of card skimming.
  • 24% of the victims noticed the loss within three days.
  • Nearly half the victims (47%) were using their date of birth as a password; while the figure dropped from the previous survey (57%).
  • Most of the victims are male, with the age of most victims between 30 and 60.
<Loss Situation>
  • Withdrawal at ATMs located in convenience stores is increasing.
  • Withdrawals at midnight (especially between 23:00 and 2:00) still remain high in numbers and amount.
  • Most victims' accounts and ATMs used for fraudulent withdrawals are located in the Kanto region.
For fraud prevention, recent cases, such as hidden cameras at ATM booths and fraudulent transfers through internet using so- called spyware, must be considered.

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Status of Reception etc. of Consultation Requests at
''Counseling Office for Financial Services Users''

 
1.  Background
On July 19 of this year, the Financial Services Agency (FSA) started operating the ''Counseling Office for Financial Services Users'' (hereinafter referred to as the ''Counseling Office'') to receive, under a one-stop umbrella, inquiries, consultation requests and comments, etc. concerning financial services, etc. (hereinafter referred to as ''consultation requests, etc.'') from users, in an attempt to augment the level of convenience for financial services users and utilize the received information for financial administration purposes in an effective fashion. Data such as the number of consultation requests received by the Counseling Office from users and points of major consultation cases are scheduled to be released to the public on a quarterly basis; the recent release (dated October 27) is data on the period between July 19, the first day of Consulting Office operations, and September 30.
 
2.  Public Release Outline
(1) We received a total of 6,573 consultation requests, etc. between July 19 and September 30, which makes the average number of consultation requests, etc. 126 a day.
(2) The distribution of consultation requests, etc. by subject is: 1,774 (27%) on depositing and financing, etc.; 2,487 (38%) on insurance products etc.; 1,534 (23%) on investment products, etc.; 660 (10%) on cash loans, etc. and 118 (2%) on other issues.
(3) The characteristics, etc. found in each subject area are as follows:
a. On the subject of depositing and financing, etc.: Consultation requests, etc. with respect to deposit services included general questions, etc. about the system of explanation at the time of making a deposit, as well as about the pay-off scheme and counterfeit or stolen cash cards; the implementation and repayment of financing was among the cases brought on the subject of financing services.
b. On the subject of insurance products, etc: Many consultation requests, etc. concerned insurance payments, etc.; responses from insurance companies at the time of filing insurance claims, etc.; and the system of explanation on the part of insurance companies at the time of solicitation, etc.
c. On the subject of investment products, etc.: Many consultation requests, etc. concerned foreign exchange margin trading, computer system trouble at Internet-based securities companies, and trading of unlisted shares, etc.
d. On the subject of cash loans, etc.: Many consultation requests, etc. concerned with inquiries about the existence of the moneylender registration, and improper conducts, etc.
(4) Of the consultation requests, etc. that the Counseling Office received, seven major cases, one from each subject area, are presented as ''Consultation Case Examples, etc. and Advice, etc.''
(Reference) Details of the seven case examples
  a. Supply of information on financial institution accounts used by illicit businesses
  b. Consultation request, etc. concerning explanation provided to customers regarding insurance details
  c. Consultation request, etc. concerning the duty of disclosure
  d. Consultation request, etc. concerning insurance payments
  e. Consultation request, etc. concerning foreign exchange margin trading
  f. Consultation request, etc. concerning trading of unlisted shares
  g. Consultation request, etc. concerning borrowing from illegal moneylenders, etc.
(5) As the consultation requests, etc. received also contained some information that can be useful for inspection and supervision purposes (see Note), the FSA values and uses such information in its financial administration on an as-required basis, from a perspective of protecting users and augmenting the level of convenience for users as a whole, including supplying it to relevant agencies and conducting interviews with financial institutions named therein.
(Note) Information that can be useful for inspection and supervision purposes
  a. Information supplied with respect to lending crunch or oppressive debt collection
  b. Information supplied with respect to financial institution accounts used by illicit businesses
  c. Consultation requests, etc. with respect to improper conduct by foreign exchange margin trading businesses (e.g., solicitation for customers with no investment experience, presentation of categorical judgments, unauthorized sale/purchase, delayed refund of the balance, etc.)
  d. Consultation requests, etc. with respect to improper conduct by insurance company salespersons, etc. (e.g., subornation of non-disclosure, advance payment of insurance premiums, unauthorized agreement establishment, use of someone's identity, etc.)
 
3.  Approach to Future Actions
In line with the fact that the Counseling Office was established in order to serve as part of the efforts to achieve the purpose of ''Strengthening the framework for providing information and counseling in order to protect users,'' one of the measures stated in the ''Program for Further Financial Reform,'' the FSA is committed to continuing the appropriate operation of the Counseling Office so that ''a financial system in which the level of users' satisfaction is high'' will be realized, as the ''Program for Further Financial Reform'' describes as a vision of a desirable financial system for the future.

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Amendment to Administrative Guidelines (Volume III: For Non-Bank Finance Companies): clarification of Moneylenders' Obligation to Disclose Transaction History


1.
 Introduction
Following a Supreme Court decision upholding that ''moneylenders are obliged to disclose transaction history,'' the Financial Services Agency amended the Administrative Guidelines for the moneylending business (Volume III: For Non-Bank Finance Companies) with intentions to clearly specify the obligation to disclose transaction history under the ''Money-Lending Business Control and Regulation Law'' and also to specify personal identification procedures to be used at the time of disclosure. The circumstances leading up to the recent amendment will be explained below, together with the overview of the amendment.

2.
 Circumstances Leading Up to the Guidelines' Amendment
The Supreme Court upheld its decision on July 19 this year of the Third Petty Bench that moneylenders, under the duty of good faith, are obliged to disclose transaction history based on the business ledgers that they maintain, as part of their obligation to loan agreements, that are subject to the Money-Lending Business Control and Regulation Law.
In this regard, paragraph 2 of Article 13 of the Money-Lending Business Control and Regulation Law stipulates the prohibition of any deceit or using any unfair or extremely undue means in lending, or managing a loan or taking measures for collection in conjunction with the lending agreement. As ''unfair'' means ''unlawful'' (as in the main text of Section 3-2-2 of the Guidelines), unlawful refusal of transaction history disclosure is an act that the Supreme Court has found to violate the duty of good faith (under paragraph 2, Article 1 of the Civil Code), which would constitute the use of unfair means in managing a loan in connection with a lending agreement and could be subject to administrative actions. The recent amendment to the Guidelines was intended to clearly specify and raise the awareness of how the Money-Lending Business Control and Regulation Law is to be applied in accordance with the Supreme Court's decision as described above.
In addition to the above consideration, we also proceeded to create in the amended Guidelines, provisions specific points to be noted by moneylenders in taking personal identification procedures when they are requested to disclose transaction history. Seeing that transaction history is also personal information, adequate and appropriate personal identification procedures are required in disclosure so that it should not be unduly passed on to a third party; in reality, however, this practice was disoriented, as to how strict such personal identification procedures should be conducted and some businesses would supposedly impose excessive burdens on requesters. In the recent amendment, the fundamental approach is clearly stated initially that moneylenders should not impose excessive burdens on requesters, and from this aspect, it specifies matters that moneylenders should pay attention to.
Following public comments sought between August 12 and September 2, the amendment was released to the public on October 14 and came into force as of November 14. The results of the public comments were also released on October 14, in which we provided detailed explanations of various matters in answer to comments received; we hope that they will be referred to in connection with this article.

3.
 Amendment Overview
(1)  Clear specification of the obligation to disclose transaction history (re: Section 3-2-2(6) of the Guidelines)
Section 3-2-2(6) of the Guidelines stipulates that where a customer; or a party who intends to serve as a guarantee obligation on behalf of another customer; or a party who, upon obtaining consent from another customer, intends to serve as an obligation on behalf of that customer (hereinafter referred to as ''customer, etc.''); or a representative for the customer, etc., requests the disclosure of transaction history in order to accurately comprehend the details of the debt, such as for the purpose of checking the amount of the debt, unduly refusing such a request is quite likely to be an act prohibited under paragraph 2 of Article 13 of the Money-Lending Business Control and Regulation Law.
As also described in our answers to public comments, what is very likely to constitute a violation of the Money-Lending Business Control and Regulation Law is the act of ''unduly'' refusing disclosure. ''Undue refusal'' in this case has two implications. The first implication is that even if the act does not formally constitute refusal, by effectively refusing the disclosure, it is treated as a refusal. For instance, a moneylender's actions for imposing excessive or unnecessary personal identification requirements would be considered such a case if it did so, despite the fact that personal identification is possible by means that are less burdensome to the customer, etc. The other implication is that a moneylender may refuse the disclosure under certain circumstances, in which case such refusal would not constitute ''undue refusal.'' For instance, a moneylender's refusal of the disclosure would presumably not constitute undue refusal if the request was made by someone who is not qualified as a lawyer, etc., whose purpose is to earn fees for debt arrangements.
 
(2)  Personal identification procedures in connection with disclosure (re: Section 3-2-8(1) of the Guidelines)
As already explained, a customer, etc., may request the disclosure of transaction history on the grounds of moneylenders' obligation of disclosure under good faith. Although grounds for disclosure request in such a case does not rest with the Personal Information Protection Law, the moneylender needs to take certain forms of personal identification procedures, due to transaction history being considered as personal information. By taking such personal identification procedures, however, the moneylender should not impose excessive burdens on the person requesting the disclosure. Upon clearly specifying such fundamental approach and taking into consideration the request and confirmation procedures that have been traditionally established as reasonable in practice, the Guidelines provide a list of matters to be noted in personal identification procedures.
The numbering in the square brackets in the following texts show the corresponding sections in the Guidelines.

(1)
 When a customer, etc., personally requests the disclosure
It would presumably be appropriate to ask for the presentation of a document verifying identity (driver's license, etc.) required under the Customer Identification Law, if for instance, the person requesting the disclosure has no past commercial relationship with the moneylender or if there is nothing suspicious about the matter described in the document at the time of the request [3-2-8(1)1)a].
If, on the other hand, the person requesting the disclosure is in a commercial relationship with the moneylender and there are other methods that are less burdensome to the requester, such as checking his identity by referring to information, etc., stated in business documents retained by the moneylender (e.g., the customer's name and customer number), it would be appropriate to conduct personal identification by that method [main text of and note to 3-2-8(1)1)b].)
If the moneylender receives a disclosure request during a meeting or phone conversation with the customer, etc., it would be inappropriate, given that personal identification has already been carried out, to ask again for identity verification. [3-2-8(1)1)c].
 
(2)  When a representative for the customer, etc., requests the disclosure
In the case of disclosure request through a representative, it is necessary to check threeconditions: (i) the customer, etc., requesting the disclosure is the very person connected with the transaction history being requested to be disclosed; (ii) the said customer, etc., has authorized the representative; and (3) the person requesting the disclosure is the representative himself. Particularly for condition (i), appropriate action would be to use a method of identification, if any, that is less burdensome to the customer, etc., as in the case of a customer, etc., personally requesting the disclosure [3-2-8(1)2)].
 
(3)  When a lawyer or a shiho shoshi lawyer requests the disclosure in the capacity of representative for the customer, etc.
While a lawyer or a shiho shoshi lawyer is assumed to be more trustworthy than a representative with no such qualification, certain forms of verification may still be deemed necessary; therefore, the recently amended Guidelines provides a list of points to note, which was developed while also considering the practice that has been widely applied. First, with respect to checking the authorization relationship, it is not necessary to ask for the presentation of the power of attorney if the authorization relationship can be presumed from the fact, for instance, that the moneylender received a notice from the lawyer or the shiho shoshi lawyer specifying that he had been authorized by the customer, etc., in the disclosure request (including a notice of representation concerning debt arrangements) and that the personal verification of the customer, etc., described in that notice is sufficient, unless there is anything particularly suspicious [3-2-8(1)3)a]. In the case of the presentation of a so-called notice of representation used in practice, it would not be necessary to present another document showing the authorization relationship, if that notice contains sufficient personal verification of the customer, etc., unless there is anything suspicious, such as an inconsistency between the information in the notice and the matter in the documents retained by the moneylender.
With respect to personal verification of the representative, it is not necessary to ask for identity verification of the representative if the disclosure request produced by the lawyer or a shisho shoshi lawyer contains his/her contact information, including the address of the firm, given that it is possible to check his/her identity by referring to the bar association or a shiho shoshi lawyer's association, unless there is anything particularly suspicious [3-2-8(1)3)b].
Lastly, it is inappropriate to ask again for identity verification or the power of attorney if, during a meeting or phone conversation between the moneylender and the customer, etc., the latter has expressed his/her intention to authorize a representative in the disclosure request or debt arrangement, etc., and the representative who is a lawyer or a shiho shoshi lawyer has without delay given notice of representation, unless there is anything particularly suspicious [3-2-8(1)3)c].
 
4.  Conclusion
In the above text, we have explained the amendment to the Guidelines with respect to the disclosure of transaction history. As transaction history is a significant piece of information for a customer, etc., to accurately comprehend the details of the debt, it will contribute to the customers' protection if moneylenders comply with the amended Guidelines and appropriately address disclosure requests from customers, etc.; at the same time, it is expected that the resulting improvements in the transparency of their operation, together with the customers' sense of reassurance that they can always check their transaction history if need be, will lead to greater trust in the moneylending business.

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Improvement of No Action Letter System


The Financial Services Agency (FSA) has been making efforts to properly implement the Prior Confirmation Procedures on the Application of Laws and Regulations (''No Action Letter System'' (Note)). Nine inquiries were handled under the System last fiscal year and two inquiries so far this year.
The Program for Further Financial Reform advocates encouraging the utilization of the No Action Letter System with the aim of improving the transparency and the predictability of financial administration. Specific efforts made recently under the Program include conducting a questionnaire survey on requests to improve the No Action Letter System (survey period: June 7, 2005 to July 4, 2005) and amending part of the System based on the survey results.
The nature of the amendment and the summary of the survey results are presented below. We hope they help you use the System based on a better understanding of the System's framework, including the amendments.
For information on the No Action Letter System, please refer to FSA's website: References and Information > No Action Letter System.
 
(Note) What are the Prior Confirmation Procedures on the Application of Laws and Regulations (''No Action Letter System'')?
These procedures are to be followed by private enterprises, etc. that are planning to sell new products or provide new services in their business activities, to confirm in advance whether or not the new business violates any laws or regulations.
The name of the inquirer, the nature of the inquiry and the response to the inquiry are made public in order to ensure fairness and improve transparency in administration.
Based on a Cabinet decision, the FSA laid down detailed regulations for the procedures and launched the System on July 16, 2001.
 
  Amendments
The following three amendments were made:
 
(1) Response Timeframe: In the detailed regulations, explicitly state ''In any case, efforts shall be made to respond as quickly as possible.''
Some questionnaire respondents pointed out that a time period exceeding 30 days is long from a business person's viewpoint. Based on their opinion, we decided to explicitly state that efforts will be made to respond as quickly as possible within the set timeframe.
(2) Cases of No Response: Delete the phrase ''the inquiry involves rules or regulations that will be revised shortly.''
This change was made to reflect suggestions that responses to inquiries relating to laws and regulations due to be revised soon should state the scheduled timing for the revision of such laws and regulations.
(3) Introduction of sample inquiry forms and response forms.
Sample forms were introduced to help inquirers prepare inquiry documents.
 
  Survey Results
 For reference, the survey results taken into account when making the above amendments are summarized below.
There were 263 effective responses. As some questionnaire respondents gave multiple answers or no answers in some parts of the questionnaire, the percentage may not add up to 100%.
 
1. No Action Letter System
  Do you know about the No Action Letter System of the Financial Services Agency (FSA)?
No Action Letter System
 2.  Existing System
 
(1)  Scope of Inquiry  
  The scope of the FSA's No Action Letter System is to deal with any of the following inquiries relating to laws and regulations which fall within the FSA's jurisdiction: (1)Scope of Inquiry
1)   Whether or not running the business or performing the transaction in question corresponds to unauthorized operation;
2)   Whether or not running the business or performing the transaction in question corresponds to unregistered operation; or
3)   Whether or not running the business or performing the transaction in question will result in a suspension of business or revocation of license, etc. (unfavorable disposition).
How do you view its scope?
   
 
(2)  Scope of Eligible Inquirers
An inquirer must satisfy all of the following criteria in order to be eligible for the FSA's No Action Letter System: (2)Scope of Eligible Inquirers
1)   The inquiry must be limited to its own business activities;
2)   The inquiry must be limited to matters relating to specific activities; and
3)   The inquiry must be limited to an inquirer who agrees to have the inquiry made public.
Are these criteria appropriate?
   
 
(3)  Inquiry Method
It is a requirement that the written inquiry clearly states the inquirer's view on the applicability of laws and regulations and the reasoning behind this. Do you consider this appropriate? (3)Inquiry Method
   
 
(4)  Response Timeframe
In the FSA's No Action Letter System, a response to an inquiry is given within 30 days of receipt of a written inquiry from the inquirer at the contact point as a general rule. Do you consider thisappropriate? (4)Response Timeframe
   
 
(5)  Case of No Response
The FSA may not respond to an inquiry that corresponds to any of the seven cases including ''inquiries containing insufficient or unclear factual information upon which to base a decision''. Do you consider this appropriate? (5)Case of No Response
   
 
(6)  Publication of Inquirer's Name, Nature of Inquiry and Response to Inquiry
In the FSA's No Action Letter System, the inquirer's name, the nature of the inquiry and the response to the inquiry are made public. However, their publication may be postponed depending on the reasons if so desired by the inquirer.
Do you think it is appropriate that consent to the publication of the inquirer's name, the nature of the inquiry and the response to the inquiry is a requirement?		 (6)Publication of Inquirer’s Name, Nature of Inquiry and Response to Inquiry
   
 
(7)  Method of Publication
As a general rule, the inquirer's name, the nature of the inquiry and the response to the inquiry are made public within 30 days of the issuance of the response. Do you consider this appropriate? (7)Method of Publication
   
 
(8)  Postponement of Publication
1)   Publication of the inquirer's name, the nature of the inquiry and the response to the inquiry may be postponed as an exception to the rule if there are reasonable grounds to do so. Did you know this? (8)Postponement of Publication1)
2)   Should examples of ''reasonable grounds'' (which are required for postponing publication) be shown in the detailed regulations? (8)Postponement of Publication2)

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