[Explanation of Laws and Regulations]
In this section, we provide a detailed explanation of the background and the nature of laws related to the Financial Services Agency (FSA) enacted in the 163rd extraordinary session of the Diet closed recently. This edition features the ''Law for Partial Amendments to the Banking Law, etc.''

Amendments to the Banking Law, etc.


1.
  Background to Amendment
The bill for the Law for Partial Amendments to the Banking Law, etc. (2005 Law No.106, hereinafter referred to as ''Amended Law'') was submitted at the 163rd extraordinary Diet session by the Cabinet on October 4, 2005. It was passed and enacted in its original form in the House of Representatives and the House of Councillors on October 20 and October 26, respectively, and promulgated on November 2.
The latest amendment involves taking the following measures aimed at improving convenience for depositors, etc. and the efficiency of bank management: (a) review the bank agent system (establishment of bank agency business system, etc.); (b) deregulate subsidiaries, operations, etc. of banks, etc.; and (c) ensure proper business operations of banks, etc.

2.
 Establishment of Bank Agency Business System
(1) Background
The bank agent system has been subject to a series of regulatory reforms to the present date, including replacing the licensing system for establishing/abolishing bank agents with a notification system, expanding the scope of agents' operations, establishing and expanding the system of financial institutions' agents. However, under the current regulations, (a) corporate agents are limited to wholly-owned subsidiaries, etc., and (b) agents are prohibited from engaging in non-agency operations on the side.
Therefore, even though agents are potentially effective sales channels, they have not been fully utilized due to their lack of mobility and flexibility and the difficulties involved in meeting diverse customer needs. The financial sector has long been submitting requests for the abolition and relaxation of capital requirements and for the further expansion of the scope of agents' operations.
Further, the Financial System Council reported in the ''Medium-term Vision for the Future of the Japanese Financial System'' on September 30, 2002 that ''a wide range of financial products may be provided by a financial intermediary, not necessarily directly, but at least indirectly via an agency or in some other form.'' In the recent reform of the financial system, channels for providing financial products and services have been diversified and enhanced in line with such a vision, including establishing securities brokerage services (enforced on April 1, 2004), lifting the ban on banks, etc. (enforced on December 1, 2004), establishing trust banking agents, etc. (enforced on December 30, 2004).
As part of the reform, the ''Three-Year Program for Promoting Regulatory Reform and Privatization'' approved by the Cabinet on March 19, 2004 sets forth that ''the bank agent system will be reviewed including the capital requirements, in consideration of the impact on the soundness of financial institutions and settlement systems, and a study will be conducted and measures will be taken during FY2004.''
With this in mind, the Second Subcommittee of the Sectional Committee on the Financial System of the Financial System Council held discussions about reviewing the bank agent system three times between December 2004 and February 2005, and compiled the ''Summary of Agendas for Reviewing the Bank Agent System'' on February 2, 2005, which set forth the basic approach to reviewing the bank agent system: ''capital requirements, specialization regulations, etc. can be abolished… by improving the system for protecting depositors, maintaining a smooth and reliable settlement system and ensuring the financial system's soundness.'' The latest amendment is based on the Second Subcommittee's reports and discussions.

(2) Approach to Reviewing Bank Agent System
The basic approach of the latest amendment is to secure and improve users' access to financial services and allow entities to enter into the bank agency business in more diverse ways so that financial institutions can efficiently utilize various sales channels. Accordingly, ordinary businesses no longer have to have a capital relationship with a bank, which was previously a requirement for entering the bank agency business. Further, agents are now able to engage in non-bank agency operations on the side. On the other hand, entry into the bank agency business is now subject to approval aimed at ensuring that bank agency businesses are executed in a proper and steady fashion, while agents who wish to engage in non-bank agency operations on the side are subject to authorization on an individual basis. Further, measures are to be taken to ensure user protection and the soundness of banks.

3.
 Overview of Bank Agency Business System
  (1) Definition of Bank Agency Business
''Bank agency business'' is defined as a business involving serving either as an agency or an intermediary on behalf of a bank for the bank's core businesses, namely: (a) accepting deposits or installment savings, etc.; (b) lending funds or discounting bills; and (c) concluding foreign-exchange contracts (paragraph 14, Article 2 of the amended Banking Law, hereinafter the same with respect to all quoted clauses unless stated otherwise) and is subject to the bank agency business system (Therefore, for example, if a bank serves as an intermediary for a securities service, it will be regulated by the Securities and Exchange Law as a securities brokerage service.)
 

(2)
 Entry into Bank Agency Business
1) Introduction of Approval Scheme
As bank agents take on some economically crucial functions such as settlement and lending, their failure to carry out business operations properly might cause problems in settlement systems and customer protection. In consideration of the peculiar nature of the bank agency business as described above, an approval scheme was introduced with respect to entry into the bank agency business, in order to screen the eligibility of applicants before allowing a wide range of ordinary business entities to enter into the bank agency business (paragraph 36-1, Article 52 of the Banking Law).
The application form for approval must state the following information and be submitted to the Local Finance Bureau in charge, with documents, etc., stating the nature and the methods of the operations of the bank agency business attached (paragraph 37, Article 52 of the Banking Law): (a) trade name, title or name, (b) name of an executive in cases where the applicant is a corporation, (c) the name and location of the branch or office engaging in the bank agency business, and (d) the trade name of the bank with which the agent is affiliated (''affiliate bank''), etc.

2) Approval Criteria
For approval of a bank agency business, the applicant will be screened by the FSA on the basis of whether the applicant: (a) has the financial base deemed necessary to execute a bank agency business; (b) has the capacity required to execute a bank agency business in a precise, fair and efficient manner and has sufficient social credibility in light of personnel structure, etc.; and (c) is deemed to have no risk of causing any hindrance to running the bank agency business in a proper and steady manner by engaging in other operations (paragraph 38-2, Article 52 of the Banking Law).
If it is deemed necessary in the interests of the public in light of the screening criteria, conditions may be attached to the approval and may be modified to the extent required. For example, conditions may be attached to the nature of the operations of the bank agency business depending on the nature of the non-bank agency operations (paragraph 38-1, Article 52 of the Banking Law).

3) Introduction of Multi-operations Authorization Scheme
Bank agents are now allowed to engage in operations other than the bank agency business and its incidental operations (non-bank agency operations) subject to the FSA's authorization. As stated above, entities already engaged in non-bank agency operations will be screened in the approval procedures for the bank agency business, as to whether they are at risk of causing hindrance to the bank agency business. Additionally, if an entity wishes to newly engage in non-bank agency operations after obtaining approval, it must go through the individual approval procedures based on the same criteria (paragraph 42-1, Article 52 of the Banking Law).

(3)
 Modality of Operations of Bank Agency Business
1) Explicit Statement to Customers
Prior to engaging in any bank agency activities (activities referred to in the subparagraphs of paragraph 14, Article 2 of the Banking Law), bank agents are now required to explicitly state the trade name of the affiliate bank and whether or not they are acting as an agent or an intermediary to customers (paragraph 44-1, Article 52 of the Banking Law).

2) Provision of Information to Depositors, etc.
In the same manner as banks' duty to provide information to depositors, etc. (paragraph 2-1, Article 12 of the Banking Law), bank agents are now required to provide information that will be helpful to depositors, etc. including the nature of the contract relating to deposits or installment savings, etc. (paragraph 44-2, Article 52 of the Banking Law).

3) Measures to Ensure Sound and Proper Administration
In addition to (1) and (2) above, bank agents are now required to provide customers with important information on their bank agency activities, properly handle information on customers acquired in relation to their bank agency activities, and take other measures to ensure sound and proper administration (paragraph 44-3, Article 52 of the Banking Law).

4) Prohibited Activities in Bank Agency Business
Activities in bank agency business targeted at customers which have the risk of undermining customer protection or hindering the sound and proper execution of operations of the affiliate bank have been banned, including: (a) making false statements; (b) making an assertion on matters that are uncertain or making a statement that might be misconstrued as a certainty; (c) acting as an agency or intermediary in lending funds or discounting bills on the condition that the customer performs other transactions by abusing the agent's dominant position; and (d) acting as an agency or an intermediary in lending funds or discounting bills under favorable terms compared to the normal terms of trade at the affiliate bank (Paragraph 45, Article 52 of the Banking Law).

5) Posting of Signs
Entities that have been approved to serve as a bank agent are now obliged to post signs to that effect. Further, in order to prevent customers from dealing with unapproved entities, non-bank agents are now prohibited from posting signs of bank agents or similar signs that might be mistaken as those of bank agents (paragraph 40, Article 52 of the Banking Law).

6) Prohibition of Name-lending
In order to avoid deviating from the objective of the approval scheme, bank agents are prohibited from allowing anyone else from running a bank agency business under their names (paragraph 41, Article 52 of the Banking Law).

7) Segregated Custody
If a bank agent has received money or any other asset from a customer in relation to bank agency activities, the bank agent is required to manage it separately from its own assets (paragraph 43, Article 52 of the Banking Law).
Specifically, if a bank agent has received money or any other asset from a customer, the bank agent must clearly distinguish its storage place from that of its own assets, and manage it in an immediately identifiable way with respect to which affiliate bank it is related to. In the case of money, however, the bank agent is deemed to be allowed to store it in an immediately identifiable way by a ledger with respect to which affiliate bank it belongs to.

8) Holidays, Business Hours, etc. of Bank Agents
In order to ensure stability in the settlement system, bank agents who receive current deposits of behalf of banks are subject to the same regulations as banks with respect to holidays and business hours, i.e., bank holidays and business hours (from 9:00am to 3:00pm) under the Banking Law (paragraph 46, Article 52 of the Banking Law).
Branches and offices that do not carry out in any specific bank agency activities are neither subject to the said regulations nor prevented from operating outside the bank holidays and business hours under the Banking Law.

(4)
 Accounting, etc.
1) Books and Records for Bank Agency Business
In order to clarify the processes and calculations of the bank agency business, bank agents are now obliged to prepare and keep books and records related to the bank agency business (paragraph 49, Article 52 of the Banking Law).

2) Reports on Bank Agency Business
Bank agents are now required to prepare reports on the bank agency business each fiscal year or business year and submit such reports to the FSA, which in turn will make those reports available for public inspection (paragraph 50, Article 52 of the Banking Law).

3) Public Release of Manuals, etc. of Affiliate Bank
In light of disclosure to customers, bank agents are now required to make available at all times so-called disclosure journals--prepared and made available for public inspection by the affiliate bank or the holding company of the affiliate bank under the provisions of the Banking Law--at the branch or office running the bank agency business and make them available for public inspection (paragraph 51, Article 52 of the Banking Law).

(5)
 Affiliate Bank, etc.
1) Adoption of Affiliate Bank System
Intermediation may be based on (a) an affiliate company system (intermediation for a specific company) or (b) a broker system. Under the bank agency business system, bank agents ''shall not engage in bank agency business unless commissioned by an affiliate bank or re-commissioned by a bank agent who has been commissioned by an affiliate bank'' (affiliate bank system). It is primarily a system that is designed to ensure sound and proper administration of bank agency business through an affiliate bank (paragraph 36-2, Article 52 of the Banking Law).
A bank agent is able to run a bank agency business on behalf of more than one affiliate bank.

2) Guidance, etc. to Bank Agents by Affiliate Bank
The affiliate bank is now obliged to give guidance on operations to its bank agents and otherwise ensure sound and proper administration of the bank agency business (paragraph 58, Article 52 of the Banking Law).

3) Affiliate Bank's Liability for Damages
The affiliate bank is now liable for damages inflicted by its bank agent upon a customer. On the other hand, it is stipulated that the affiliate bank, etc., will be exempted from liability if it has exercised considerable caution in commissioning and has made efforts to prevent the loss incurred by the customer from occurring. However, it is claimed that liability without fault is more or less assumed, as there are no legal precedents in which the exemption of employer's liability under the Civil Code has been recognized. Therefore, cases in which exemption of liability would actually be recognized are deemed to be limited (paragraph 59, Article 52 of the Banking Law).

4) Original Register of Bank Agents
The affiliate bank is now required to make the original register relating to bank agents available at all times, and depositors and other stakeholders are now able to request the affiliate bank for the perusal of the original register (related to paragraph 60, Article 52 of the Banking Law).

(6)
 Supervision of Bank Agents
The FSA can now issue a reporting request (paragraph 53, Article 52 of the Banking Law) and conduct on-the-spot inspection (paragraph 54, Article 52 of the Banking Law) with respect to a bank agent if it is deemed necessary to ensure the sound and proper administration of the bank agency business of the bank agent, and even issue a Business Improvement Order, etc. (paragraph 55, Article 52 of the Banking Law), revoke the approval for the bank agency business, and suspend all or part of the bank agency business (paragraph 56, Article 52 of the Banking Law).

(7)
 Exclusion of Application
Entities engaged in banking or other finance business (which are due to be defined as financial institutions that handle deposits and savings such as long-term credit banks and shinkin banks) can now engage in bank agency business without obtaining approval and are now subject to essential regulations for bank agency business (paragraph 61, Article 52 of the Banking Law).

(8)
 Review of Agent System for Cooperative Financial Institutions, etc.
A system similar to the bank agency business system has been developed for long-term credit banks, shinkin banks, labor credit associations, credit unions, agricultural cooperatives and fisheries cooperatives (including their associations) and the Norinchukin Bank by amending the Long-Term Credit Bank Law, the Shinkin Bank Law, the Labor Credit Association Law, the Law on Banking Business by Cooperatives (hereinafter referred to as ''Cooperative Banking Law''), the Agricultural Cooperative Association Law, the Fishery Cooperative Law and the Norinchukin Bank Law.

4.
 Deregulation of Subsidiaries, Operations, etc.
  (1) Lifting of Ban on Joint Establishment of Auxiliary Service Company
Under the existing Banking Law, if a bank wishes to have a company operating auxiliary services (business-purpose real estate management service, welfare service, ATM maintenance and inspection service, cash collection service, etc.) as its subsidiary, the bank's dependency on income (ratio of income to total income) from the bank group (the bank, the bank's holding company and their subsidiaries) must exceed 50%, in view of the objective of prohibiting banks from engaging in other businesses, etc.
Furthermore, unless the company meets the income dependency requirement, the bank and its subsidiaries together cannot hold more than 5% voting power of the company (or more than 15% in the case of the bank's holding company and its subsidiaries combined) (paragraph 3, Article 16 of the Banking Law).
This makes it impossible for bank groups to jointly establish an auxiliary service company. The latest amendment allows bank groups, etc., to jointly establish an auxiliary service company provided that the income dependency of the bank group and other bank groups, etc., combined exceeds a certain percentage with respect to the auxiliary service company, in order to help improve the efficiency of bank management, etc.
 
(2) Abolition of Licensing System for Securities Operations, etc., under Shinkin Bank Law, etc.
In order for a shinkin bank to engage in securities operations, trust operations or trust operations relating to secured bonds, the shinkin bank had to be registered, etc., under the Securities and Exchange Law, the Law for Trust Business in Financial Institutions and the Law on Secured Bonds Trust, and separately, be licensed under the provisions of the Shinkin Bank Law. The licensing system under the Shinkin Bank Law is now abolished. The licensing system for accepting solicitation or management of local government bonds, etc., on trust under the Shinkin Bank Law has also been scrapped (Articles 53 and 54 of the Shinkin Bank Law).
Similar amendments have been made for labor credit associations (Article 58 and paragraph 2, Article 58 of the Labor Credit Association Law), credit unions (Article 3 of the Cooperative Banking Law), agricultural cooperatives (Article 10 of the Agricultural Cooperative Association Law), fisheries cooperatives (Articles 11, 87, 93 and 97 of the Fishery Cooperative Law) and the Norinchukin Bank (Article 54 of the Norinchukin Bank Law).

5.
 Measures to Ensure Proper Business Operations
  (1) Review of Arms Length Rule
As a measure to prevent terms of trade that are available solely to relatives from undermining the interests of depositors, etc., as a consequence, the bank is not allowed to have dealings, etc., with specific parties or customers of specific parties that would be detrimental to the bank in light of the bank's normal terms of trade (so-called arms-length rule). In conjunction with the establishment of the bank agency business system, bank agents have been included in the definition of specific parties, in order to prevent any harmful effects from arising due to bank agents exercising undue influence on the affiliate bank (paragraph 2, Article 13 of the Banking Law).

(2) Prohibited Activities in Operations of Banks, etc.
The Banking Law squarely defines bank agents and explicitly states the prohibited activities relating to bank agency business in concrete terms (paragraph 45, Article 52 of the Banking Law). By the same token, the Banking Law explicitly states typical prohibited activities of the banks themselves, in consideration of our experience, etc., in supervisory administration (paragraph 3, Article 13 of the Banking Law).
Specifically, activities with the risk of undermining customer protection have been banned, such as: (a) making a false statement to a customer; (b) making an assertion on matters that are uncertain or making a statement that might be misconstrued as a certainty; and (c) providing credit or promising to provide credit on the condition that the customer performs transactions associated with operations run by a closely-related entity by abusing the bank's dominant position.

(3) Reporting Request and On-the-spot Inspection targeted at Contractors of Banks, etc.
Banks are outsourcing their operations in view of improving the efficiency of bank operations and for other reasons. However, problems have occurred in recent years in the form of system problems, leaked client information, etc. There is a risk that reporting requests and on-the-spot inspections targeted at banks might not be sufficient by themselves for the purpose of ensuring sound and proper business operations of banks.
Accordingly, in order to improve the effectiveness of inspection and supervision of banks, etc. (referring to a bank or the bank's holding company), the FSA is now allowed to directly issue a reporting request and conduct on-the-spot inspection with respect to (a) a corporation whose management is controlled by banks, etc., and (b) an entity that has been commissioned to undertake operations for banks, etc. (excluding bank agents), in addition to the subsidiaries of banks, etc., to the extent required if it is deemed particularly necessary in order to ensure sound and proper business operations at the bank (related to Articles 24 and 25, and paragraphs 31 and 32 of Article 52 of the Banking Law).
''An entity that has been commissioned to undertake operations for banks, etc.,'' is deemed to correspond to a contractor of the bank's ancillary operations, a contractor taking on necessary duties to run operations (system administration, etc.) and the like.

(Note) Similar measures have been taken for long-term credit banks, shinkin banks, labor credit associations, credit unions, agricultural cooperatives, fisheries cooperatives and the Norinchukin Bank with respect to 1 through 3 above.

(4) Public Announcement of Interim Financial Results of Banks, etc., and Compulsory Disclosure
The new capital adequacy requirements (Basel II) attach greater importance to disclosure than ever before, for the purpose of improving the effectiveness of market discipline through the enhancement of disclosure, in that they require the disclosure of the capital adequacy ratio, its breakdown, the extent of risk by risk type, the risk calculation method and so on. With this trend in mind, the bank and the bank's holding company are now obliged to make their financial results and disclosure journals available for public inspection with respect to the first half of the fiscal year (April to September) on top of the annual financial results and disclosure journals which were already compulsory, in order to further enhance disclosure (Articles 20 and 21, and paragraphs 28 and 29 of Article 52 of the Banking Law).

6.
 Enforcement Date, etc.
  (1) Enforcement Date
The Amended Law will be enforced from the day set forth by government ordinance within one year of its promulgation (November 2, 2005) (hereinafter referred to as ''enforcement date'') (The Amended Law is scheduled to come into force on April 1, 2006) (Article 1 of Supplementary Provisions).
 

(2)
 Interim Measures
 
1)   An entity which is already engaged in a bank agency business, etc., at the time the Amended Law comes into force (excluding any entity engaged in bank agency business under an agent established under the provision of paragraph 1, Article 8 of the old Banking Law, banks, etc.) must obtain approval for the bank agency business within three months of the enforcement date if it wishes to continue running the bank agency business, etc. (Articles 2 and 10, Articles 12 through 14, and Articles 17, 20 and 24 of the Supplementary Provisions).
2)   An entity which is already engaged in a bank agency business under an agent established under paragraph 1, Article 8 of the old Banking Law at the time the Amended Law comes into force (excluding banks, etc.) will be deemed to have been approved for the bank agency business, etc., at the enforcement date and will be subject to the provisions of the Banking Law, etc., accordingly. In this case, the entity must submit an application form for approval of the bank agency business with the necessary information filled out within three months of the enforcement date (paragraphs 1 and 2 of Article 3 and paragraphs 1 and 2 of Article 11 of the Supplementary Provisions).
3)   Banks, etc., already engaged in a bank agency business under an agent established under paragraph 1, Article 8 of the old Banking Law at the time the Amended Law comes into force must submit an application form for approval of the bank agency business with the necessary information filled out within three months of the enforcement date (paragraph 4 of Article 3 and paragraph 4 of Article 11 of the Supplementary Provisions).

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[Primer on Financial Literacy]
*   This section provides easy-to-understand explanations on financial terms and various questions related to financial matters that tend to be too specialized and hard to understand.
  The keyword for this month is ''Accountant's audit quality control''.

Audit corporations and Certified Public Accountants (CPAs) are required to audit the financial statements, etc. of companies according to generally-accepted auditing standards (GAAS) and express their opinion on those financial statements, etc. based on the audit results. One form of GAAS is the Auditing Standards released to the public by the Business Accounting Council (BAC), which include standards that should be observed for the quality control of audits.
The BAC decided at the general meeting held in January 2005 to launch deliberations on making quality control of audits more concrete, stricter, etc., in response to the scandals relating to the quality control of audits based on the screening system, internal control system, etc. of audit corporations. On October 28, the BAC revised the Auditing Standards and established the ''Standards for Quality Control of Audit independently of the Auditing Standards,'' in order to rationally ensure the quality of audit duties performed by CPAs.
The revised Auditing Standards define quality control as ''control of quality required to properly conduct all audits in compliance with GAAS.'' They also state that ''auditors must establish quality control policies and procedures for their own organization and confirm that audits are being conducted in accordance with them.''
The Standards for Quality Control of Audit consists of provisions for standards applicable to audit firms, which are laid down separately from the provisions for standards applicable to audit staff with respect to each item, as quality control to be observed by audit firms is distinguished from quality control to be observed by audit staff who performs the individual audit duties. Main items of the Standards for Quality Control of Audit are:
   (1)   Development and operation of quality control system;
   (2)   Professional ethics and independence;
   (3)   Conclusion of new audit contracts and renewal of existing audit contracts;
   (4)   Recruitment, education/training, evaluation and appointment of audit staff;
   (5)   Performance of duties (performance of audit duties, screening associated with audit duties, etc.);
   (6)   Monitoring of quality control system;
   (7)   Handover between audit firms; and
   (8)   Joint audits.

Practical guidelines required for applying the Auditing Standards in practice have been prepared by the Japanese Institute of Certified Public Accountants (JICPA). For quality control, JICPA has published the Auditing Standards Committee Report No.12 ''Quality Control of Audits'', etc., which also serve as auditing standards to be observed by audit corporations and CPAs.
Further, for the quality control of audits, JICPA has been conducting quality control review since 1999. ''Quality control review'' is a system under which JICPA's full-time staff reviews the status, etc. of quality control of audits conducted by audit firms and recommends improvements to audit firms as necessary. Since April 2004, the Certified Public Accountants and Auditing Oversight Board (CPAAOB) established in the Financial Services Agency (FSA) has been screening ''quality control review'' and conducting inspections targeted at JICPA, audit firms, etc. as necessary, for the purpose of further improving the ''quality control review'' functions and enhancing and reinforcing audit duties at audit firms.

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[Hot Picks from the Financial World]
*   We deliver the hottest information of the times in this section, selected from among questions and answers given at the Minister's press conferences etc.
''Hot Picks from the Financial World'' for this month feature an excerpt of finance-related statements made at the inaugural press conference by Mr. Kaoru Yosano, who assumed office as Minister of State for Financial Services and Economic and Fiscal Policy on October 31.
For further information, please access the ''Press Conferences'' section of Financial Services Agency's official website.

[Opening Statement at Inaugural Press Conference by Kaoru Yosano, New Minister of State for Financial Services and Economic and Fiscal Policy]
    As a result of the Cabinet reshuffle today, I have been appointed as Minister of State for Economic and Fiscal Policy and Financial Services. I am committed to making the utmost efforts to fulfill the duties that have been assigned to me.
In regards to financial administration, the percentage of non-performing loans has fallen to less than 3% at major banks and to about 5% in other financial institutions, thanks to substantial efforts made by the parties concerned. As many people have had an extremely tough time in the process, the time has come for financial institutions to take on risks and resume their financial activities to bring about economic growth in Japan.
As financial administration in itself is substantially authoritarian, I believe power should be exercised in a restrained manner and in the interests of the national economy, and for each and every citizen. Banks can now sell products of life and non-life insurance companies over the counter, and in the latest Diet session, the revision of the law on bank agencies was finally approved. In such an environment, a wide range of new kinds of investment business will emerge in the days ahead. I personally believe that certain laws will have to be amended in order to ensure that peoples' assets are safely invested.
Further, there is the question of whether there are any inadequacies in the legislation regarding corporate acquisitions. Various empirical and academic studies are being conducted, so we need to look into whether legislative amendments are required.
 
Q.     What is your understanding of the current status of the financial system, including regional financial institutions?

A.		  
The primary mission or business of a financial institution is to take risks. Without risk-taking, the financial sector cannot stimulate the economy.
My approach is always based on the assumption that the Japanese financial system is extremely well-developed. Indeed, there are problems such as those relating to over-banking, but they will naturally have to be solved.
This may not be a pressing issue for the Japanese financial system, but I imagine the biggest challenge that the system will have to face is how the postal bank will enter the financial system.
 
Q.     What is construed as over-banking?

A.		  
I think this problem has largely been sorted out over the past decade. It has been sorted out through mergers and closure of branches, and a considerable number of branches have been shut by managerial decision. Yet, the number of financial institutions remains higher than in other countries. The question is whether it is fair to simply compare it with other countries. It depends on Japan's economic culture, business relationships stemming from the past and various other factors. Nevertheless, I think we must look at the fundamentals of the economy to see whether it can sustain so many financial institutions.
 
Q.     Does that mean that the number of banks and financial institutions should be reduced in the long run?

A.		  
It will probably come down to the number of financial institutions that is appropriate for the size of the Japanese economy, but this should be subject to the situation at each financial institution. It is not a matter for the FSA to dictate that individual institutions go out of business or scale down.
 
Q.     Is there any particular area in which you intend to concentrate your efforts?

A.		  
Financial administration requires transparency, and inspections need to be conducted properly in order to protect peoples' financial assets. I am not particularly worried about financial institutions in general, but for financial administration in the broad sense, the Financial Services Agency (FSA) must constantly be on the lookout, to determine ways to prevent innocent consumers being caught up in bad situations due to new financial products and to determine whether securities transactions are performed in a fair and transparent manner.
In addition, financial institutions must have a proper vision or screening system that enables them to take risks as mentioned previously, although this is at their managerial discretion. Further, in the reform of government-affiliated financial institutions, I am concerned about what may happen to the financing framework for small and micro enterprises in the future. As politicians, we should be concerned about this in the context of social policy, separate from the so-called market mechanism.
(from the inaugural press conference on Monday, October 31, 2005)

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[Notice]
Be careful of your Cash Card

Crimes involving withdrawal of deposits/savings at automatic teller machines (ATMs) with stolen and counterfeit cash cards are increasing.
 
What you can do to avoid becoming a victim of cash card forgery and theft
   1. Management of Personal Identification Number (PIN)
  • Do NOT tell your PIN to other people. (In some cases, a person pretending to be a police officer or bank clerk may ask your PIN over the phone. A police officer or bank clerk will NEVER ask your PIN.)
  • Do NOT use the PIN of your cash card as the secret code for a locker in locker rooms of golf courses, saunas or other public places. (There have actually been cases in which cash cards were stolen from the safety box at a golf course and their magnetic data copied and used to withdraw deposits/savings.)
  • Do NOT write down your PIN on the cash card. Do NOT keep or carry around any memos about your PIN (any documents that imply your PIN) with your cash card.
  • Do NOT use your date of birth, phone number of your home or workplace, your address, your vehicle registration number or any other number that could be guessed by others as your PIN. (Results of a survey on victims who have had their deposits/savings illegally withdrawn by forged cash cards revealed that about 40% of them used their date of birth or a number that could easily be guessed from their date of birth as their PIN.)
  • Check whether there is anyone suspicious-looking around you when using an ATM to make sure that no one is peering into the screen. Watch out to make sure that no one is peering over your shoulders--for example, cover the keypad with your hands when you enter your PIN.
    *   There have been cases in which hidden cameras were installed in unmanned ATM booths of financial institutions in the Kanto and Tokai regions, where photos of PIN entry are believed to have been secretly taken. Watch out for any suspicious machines installed when you use an ATM. If you find any suspicious machines, etc. when using an ATM, promptly contact the financial institution.
   2. Management of Cash Card
  • Carry your cash cards with you and frequently check that they have not gone missing. In particular, do NOT leave them inside a desk drawer or a chest of drawers.
  • Do NOT hand over your cash card to other people without careful thought.
  • Do NOT treat your cash card in ways that are generally deemed to be at high risk of theft. (In some cases, people have had their cash card stolen while dosing off under the influence of alcohol or when they left their coat on a hanger in a restaurant, etc. There have also been quite a few cases in which people have had their cash card stolen as a result of a mugging, car break-in or burglary.)
   (Reference: Security Measures at Home)
  • Do NOT own more cash cards than you really need.
  • Old cash cards that have not been used for a long time might have security problems. Consult the financial institution that issued the cards.
    For information on other security measures at home, please check the official website of the police department in your prefecture.
   3. Account Management
  • If your bankbook has not been updated for a long time, you might not notice that money is missing until much later. Check your balance and update your bankbook frequently.
  • Do NOT keep a larger amount of cash in your ordinary account than you need.
  • Some cash management accounts have a facility that allows you to overdraw up to a certain percentage of the balance of your term deposit by cash card. If this facility is unnecessary, request the financial institution to disable it.
   4.  Financial Institutions' Services
  Some financial institutions offer IC cash cards, give you withdrawal notification, allow you to suspend ATM withdrawals from a computer or a mobile phone, allow you to change the withdrawal limit, and issue cash cards with insurance. Make full use of such services.

   If you realize your cash card is missing...
  • Report to your financial institution immediately. Even if your cash card has not been stolen during a burglary or car break-in, the magnetic data might have been copied, so make a report to your financial institution just in case.
  • If you realize that your cash card has been stolen, report this to your financial institution as well as your nearest police station.

Unauthorized Transfers by Internet Banking

In recent years, there have been incidents involving unauthorized transfers executed by using personal information, etc. stolen based on a fraud technique known as ''phishing'' and programs referred to as ''spyware''. As the methods used are extremely elaborate, there is no way of preventing damage from occurring and spreading unless the Internet user proactively takes countermeasures.
Internet users are advised to take proper measures by using the information here as reference.
 
What you can do to avoid becoming a victim
   1.  Make Sure Your Antivirus Software and Operating System (OS) are Updated to the Latest Version.
  • New viruses appear on a regular basis, so keep your antivirus software and OS updated to the latest version at all times. Never disable your antivirus software.
   2. Be Suspicious of E-mail First.
  • It is dangerous to carelessly open unsolicited e-mails with titles like ''Important Message'' sent to you by companies. Make it a habit to avoid opening strange e-mails without much thought (do NOT even display them on the preview panel).
  • Do NOT respond to e-mails that request your reply or entry of personal information without careful consideration. It might be a good idea to routinely check your bank or card company's customer service center so that you can contact it immediately in the event that you receive any suspicious e-mail.
  • In particular, ''attached files'' are extremely dangerous. As an attached file might be infected with a virus or consist of spyware, never open such a file unless it is from a trustworthy sender.
   3. Stay Clear of Suspicious Websites.
  • Many spyware programs are installed ''simply by browsing a website.'' Stay clear of suspicious-looking websites. In particular, never browse a website that asks you to disable your antivirus software first (websites that state ''This website will not be properly displayed unless the antivirus software is disabled'' or other similar messages).
   4. Do NOT Use Suspicious CD-ROMs, etc.
  • There have been incidents involving CD-ROMs containing spyware directly sent by a person pretending to be a financial institution. The media format is not limited to CD-ROMs; other media might be used. If an unsolicited CD-ROM is sent to you, do NOT use it without careful thought; first confirm with the financial institution. As the phone number written on the CD-ROM, etc. might be the number of a bogus customer service center, contact the financial institution by an alternative method.
What is Phishing?
''Phishing'' is a scam involving e-mail sent by a criminal who impersonates a financial institution (bank or credit card company), etc. (such e-mail is hereinafter referred to as ''phishing e-mail,'' refer to below) which is designed to defraud users of their personal information, such as address, name, bank account number and credit card number. A typical tactic is to dupe a user into visiting a bogus website via a hyperlink on the e-mail and enter his/her personal information on that website. This might result in unauthorized withdrawals from the user's account or unauthorized use of his/her credit cards. In the United States, which already suffered from huge damage in this area, approx. 73 million people have received more than 50 phishing e-mails per year on average, and the related financial damage has reached approx. $930 million (approx. \100 billion) according to a survey conducted by U.S. research firm Gartner Inc. Incidents involving thefts of ID and passwords for Internet banking and credit card numbers have already occurred in Japan, and there are concerns that the damage might spread in the years to come.

[Example of Phishing E-mail]
Phishing e-mails may be designed to: dupe users into visiting a website that is an imitation of a service provider's website as in case (1) below; or direct users to a genuine website and then urge them to change the password as in case (2) below.
(1)  Scam urging Users to Enter ID and Password at a Website That is an Imitation of a Service Provider's Website
* At first glance, it looks like a hyperlink to the website of ~ Service but if you click on it, the browser displays a bogus website imitating ~ Service's website.
(2)  Scam urging Users to change Password on Service Provider's Genuine Website
* In this case, if you click on the hyperlink, ~ Service's genuine website will be displayed. If you change the password to ''******'' as instructed in the e-mail, your password will be ''known to third parties.''
 
Reference
Dear Customer of ~ Service,
Due to enhanced security measures at ~ Service, customers are required to confirm their identity online. Failure to perform this step may cause operational problems online. Please take this step as soon as possible.
    https://www.~.co.jp/login/index.htm

Dear Customer of ~ Service,
Due to enhanced security measures at ~ Service, customers are required to change their password. Your new password is ******. Please click on the following link to change the password.
    https://www.~.co.jp/login/passchange.htm

Failure to perform this step may cause problems in using ~ Service securely. Please take this step as soon as possible.

What is Spyware?
There have already been incidents in Japan involving so-called ''spyware'' that is aimed at stealing ID and passwords for Internet banking. There are concerns that the damage might spread in the years to come. A typical tactic is to install a certain program in the user's computer, and thereby steal the user's ID and password for various services including card numbers and other such information. This information is used for unauthorized withdrawals from the user's account, unauthorized use of his/her credit cards, etc.
Such spyware programs can be installed in the user's computer when the user browses a suspicious website, reads a suspicious e-mail, or installs a program from an unknown source.

[Example of Triggers of Spyware Installation]
Spyware installation is typically triggered either by: browsing a website as in case (1); reading an e-mail as in case (2); or running a file downloaded from the Internet as in case (3).
(1)   Spyware Installation Triggered by Browsing a Website
If sufficient measures are not taken, spyware installation might be triggered by just browsing a website.
Therefore, if the following links on a website have been maliciously created for the purpose of installing spyware, you might trigger the installation of the spyware by needlessly clicking on the links:
   
1.  Links on bulletin boards, etc.; and
2.  Links listed on search engine results page (SERP).
(2)   Spyware Installation Triggered by Reading E-mail
If sufficient measures are not taken, spyware installation might be triggered by just reading an e-mail. In particular, if your e-mail program is ''set to display the content of the e-mail on the preview panel where all e-mails are listed,'' spyware installation might be triggered just by selecting an e-mail.
(3)   Spyware Installation Triggered by Downloading a File
If you download and install any game from an unknown source or any software that needs to be installed to browse a suspicious website according to the website, spyware with functions other than those originally anticipated by the user might be installed at the same time.
Financial Services Agency Home page >> FSA Newsletter >> November 2005