FSA Newsletter October 2008

photo (Minister Motegi at a press conference after the inaugural cabinet meeting) photo (Minister Motegi taking over from his predecessor, Mr. Watanabe)

Minister Nakagawa at the press conference following the first cabinet meeting (September 25)

Minister Nakagawa giving instructions to FSA employees (September 25)

Table of Content

Statements, Speeches & Material

In this corner, we post statements and speeches made by the Minister, the Senior Vice Minister, the Parliamentary Secretary and FSA officials, as well as presentation material they used.


September 22, 2008

Statement by Toshimitsu Motegi, Minister for Financial Services, on ensuring market fairness for stabilization of international financial markets

September 25, 2008

''Global Market Turmoil and Beyond -Need for Longer-Term Perspectives-'' Keynote, Address by Takafumi Sato, Commissioner, Financial Services Agency at the Euromoney Japan Capital Markets Congress 2008, Tokyo

September 18, 2008

''Financial Innovation and Global Market Turmoil ∼ Preparing for the Post-Subprime World of Finance ∼ speech by Takafumi Sato, Commissioner, Financial Services Agency at the FIA Asia Derivatives Conference, Tokyo

September 11, 2008

''FSA Action in Response to Global Market Turmoil ∼ Preparing for the Post-Subprime World of Finance ∼ speech by Takafumi Sato, Commissioner, Financial Services Agency at the IIF Asian CEO Summit, Tokyo

September 11, 2008

''Internationalization of Japan's Property Markets and the FSA's Better Market Initiative'' speech by Takafumi Sato, Commissioner, Financial Services Agency at the Real Estate Investment Forum TOKYO

Photograph Gallery

In this corner, we post photographs of the Minister, the Senior Vice Minister, the Parliamentary Secretary and FSA officials at work in meetings, conferences and other events.

Former Minister Motegi and new Minister Nakagawa shake hands at the handover ceremony (September 25)
Bidding farewell to departing Minister Motegi (September 25)

[International Affairs]

Minister for Financial Services Motegi visits the United States

Toshimitsu Motegi, then Minister for Financial Services, visited the United States for 4 days starting August 27. There, he met Chairman Ben Bernanke of the Federal Reserve Board (FRB), Chairman Christopher Cox of the US Securities and Exchange Commission (SEC), President Timothy Geithner of the Federal Reserve Bank of New York and Managing Director Dominique Strauss-Kahn of the International Monetary Fund (IMF).

In the string of meetings, the Minister was able to reach a common understanding that cooperation between the financial authorities in the two countries is vital in face of new developments that are emerging in the global financial market turmoil triggered by the subprime mortgage crisis in the US. Views were also exchanged on a broad range of issues, based on the perspective of strengthening the international competitiveness of Japan's financial and capital markets.

FSA expects to strengthen cooperation with financial authorities in other countries through a direct and candid exchange of views at top levels and to push for advances in its drive to strengthen market competitiveness.


Meeting with Mr. Dominique Strauss-Kahn, Managing Director of the International Monetary Fund (IMF)


Meeting with Mr. Ben Bernanke, Chairman of the Federal Reserve Board (FRB)


''Annual Supervisory Policies for Major Banks, etc. for Program Year 2008''
''Annual Supervisory Policies for Small- and Medium-Sized and Regional
Financial Institutions for Program Year 2008''
''Annual Supervisory Policies for Insurance Companies, etc. for Program Year
''Annual Supervisory Policies for Financial Instruments Firms, etc. for
Program Year 2008''

In fulfilling its function of supervising major banks, small- and medium-sized and regional financial institutions, insurance companies, etc., and financial instruments firms, etc., the Financial Services Agency (FSA) adopts and publishes annual supervisory policies clarifying its basic approach and key points of its supervisory role in each sector at the beginning of each program year.

For the Program Year 2008, ''Annual Supervisory Policies for Major Banks for Program Year 2008'' ''Annual Supervisory Policies for Small- and Medium-sized and Regional Financial Institutions for Program Year 2008,'' ''Annual Supervisory Policies for Insurance Companies, etc. for Program Year 2008'' and ''Annual Supervisory Policies for Financial Instruments Firms, etc. for Program Year 2008'' have been adopted and published to identify priority areas in implementing financial supervision.

There policies are summarized below.

1. Introduction

At the time of establishing the Annual Supervisory Policies for Program Year 2008, global financial markets remain tense, triggered by the U.S. subprime loan problem. Furthermore, the economy is weakening, and is exposed to further downside risks depending on movements in crude oil prices and other such factors.

Against this backdrop,

  • (i) Major banks are further expected to fully demonstrate their financial functions, including the facilitation of financing, and help improve security and convenience for customers such as depositors and borrowers. In order to fully demonstrate their financial functions, it is important for major banks to maintain their own financial soundness at the same time, and it is necessary for them to conduct high-quality risk management. In order to ensure that major banks demonstrate highly sophisticated financial functions, it is also important to create a business environment that invigorates the banking industry and promotes competition, while encouraging major banks to make positive use of it.

  • (ii) Small- and medium-sized and regional financial institutions are expected to exercise their financial functions adequately in order to boost lending to small and medium-sized enterprises and to contribute to improvements in security and convenience for users, including depositors. To demonstrate full financial function, these institutions must concurrently maintain their own financial health. For this purpose, it is important for regional financial institutions to work to build an environment in which the smooth supply of funds to small- and medium-sized enterprises and maintenance of financial health are realized under suitable business management and in a positive growth cycle.

  • (iii) Insurance companies, etc. are expected to run their businesses with the view of further improving security and convenience for policyholders and to contribute to greater stability of daily lives of the citizens and other such benefits. They are also expected to meet users' needs, including medical care and the nursing of elderly people, as Japan enters into an aging society with a declining birthrate. In order for insurance companies, etc. to fulfill their functions in this regard and their responsibilities appropriately to policyholders, it is important that they maintain financial soundness, and it is necessary that they execute high-quality risk management and further improve its quality.

  • (iv) Financial instruments firms, etc. must strengthen the competitiveness and attractiveness of Japan's markets in compliance with the Better Market Initiative announced last December. The firms, etc. need to pursue the enhancement of investor security and convenience through activities under the Financial Instruments and Exchange Act. In addition, the firms, etc. must engage in business operations with an awareness of their public-interest role as the driving force of the markets, and are expected to contribute to development of a trustworthy market infrastructure. Founded on these premises, the firms, etc. are to build the necessary internal control systems and proactively execute business operations in order to provide services of higher caliber.

Based on these expectations, the supervisory policies for Program Year 2008 place an emphasis on the following areas and, to address these various issues, on actions based on an approach of qualitative improvement in financial inspection (Better Regulation).

2. Key Areas

  • (1) Major banks

    • (i) Financial Function and Security/Convenience for Users

      Finance has much contribute to supporting national life and economic activities. In the current economic situation, it is important that major banks perform their financial function properly and help improve security and convenience for users by making voluntary efforts based on the banks' innovative ideas.

      • Smooth finance
      • Meeting asset management needs
      • Business continuity
      • Preventing abuse of financial functions
    • (ii) Risk Management and Financial System Stabilization

      In the midst of changes in the economic and market environment both at home and abroad, in order for major banks to continue demonstrating their financial intermediary functions properly, they need to conduct high-quality risk management subject to proper governance; this, in turn, will help stabilize the financial system. Accordingly, the FSA will encourage major banks to make voluntary efforts by giving consideration to the following:

      • Strengthening Risk Management Related to Securitized Products
      • Enhancing Revenue Base
      • Disclosing Necessary and Sufficient Information about Risk
      • Active Participation in International Forums
    • (iii) The Better Market Initiative - Business Environment that Vitalizes the Financial Services Industry and Promotes Competition

      The Better Market Initiative (Plan for Strengthening the Competitiveness of Japan's Financial and Capital Markets1) announced by the FSA in December 2007 proposed various measures to vitalize the financial services industry and promote competition in Japan's markets in order to make the markets more attractive to both domestic and foreign customers, as well as to contribute to overseas operations of major banks. As part of the efforts based on the Initiative, the FSA will strive to develop a business environment that will vitalize the banking industry and promote competition, in the course of supervising major banks.

      • Broadening the scope of businesses permitted to banking groups
      • Enhancing dialogues with domestic and foreign financial institutions
  • (2) Small- and medium-sized and regional financial institutions

    • (i) Facilitating financing for small-and medium-sized enterprises by promoting based relationship region banking

      In the severity of the state of business for small- and medium-sized enterprises (SMEs) and the need for proper and active execution of financial intermediary functions, it is important for small- and medium-sized financial institutions to take risks and implement risk management with thorough attention to details in the corporate borrower's characteristics and state of business and to secure a smooth flow of funds to SMEs. For regional financial institutions, FSA believes that action should be taken to boost SME lending, considering the importance of fostering relationship-based banking further, with attention to the following points:

      • A more detailed assessment of facts in SME financing and reinforcement of surveillance
      • Promoting region-based relationship banking
    • (ii) Security and convenience of regional users

      In view of the importance of regional finance in economic activities in local economies, regional financial institutions must be able to contribute to the enhancement of the security and convenience of the users as important players in the local economies, through voluntary and innovative activities. Based on this understanding, emphasis is placed on the following activities:

      • Action on asset management needs
      • Continuity of business operations
      • Prevention of unfair and illegal use of financial functions
    • (iii) Risk management and stability of the financial system in local communities

      For regional financial institutions to continue adequately exercising their function as financial intermediaries amid continuing economic and market changes both in Japan and abroad, they must implement risk management of a high caliber under proper corporate governance and ultimately contribute to the stability of the financial system in local communities. For this reason, FSA plans to encourage voluntary action by the regional financial institutions with attention to the following points:

      • Proper risk management
      • Strengthening of profit base
  • (3) Insurance companies, etc.

    • (i) Promoting Efforts to Improve Security and Convenience for Policyholders

      Since 2005, problems such as the payment leakage and non-payment of insurance claims have come to light at insurance companies. In order for insurance companies, etc., to ensure the appropriateness of their operations and improve security and convenience for policyholders voluntarily, it is important that they make voluntary business improvement efforts at the organization level, in a unified manner based on proper governance. The FSA plans to take supervisory actions with attention to the following point:

      • Building Appropriate Claims Payment Management Systems
      • Establishing Appropriate Insurance Solicitation Systems
      • Enhancing Queries and Complaints Handling Systems
    • (ii) Promoting the Sophistication of Risk Management

      In the midst of the increasingly diversified needs of financial services users and the volatility in financial markets, insurance companies need to ensure financial soundness through the sophistication of risk management, and disclose their financial information appropriately, in order to properly indentify various risks and fulfill their responsibility to policyholders, in an appropriate manner. Based on this understanding, supervisory action is to be conducted with attention specifically to the following points:

      • Sophistication of Risk Management by Using a Lesson Learned from the Subprime Mortgage Problem
      • Reform of Solvency Assessment
      • Promoting Enterprise Risk Management
    • (iii) Taking a Supervisory Response Proportionate to the Nature of  Insurance Companies, etc.

      Insurance companies, etc. vary widely in terms of business scale, ranging from massive companies to those that are generally small, such as small-amount and short-term insurance providers. Insurance solicitation styles are also diversifying, ranging from those focusing on insurance agent/agency-oriented solicitations to those focusing on correspondence sales. In consideration of these circumstances, the FSA will take a supervisory response according to the business scale, style and other such nature of insurance companies, etc.

      • Stance on Insurance Groups, etc.
      • Stance on Small-amount and Short-term Insurance Providers
      • Stance on Specified Insurers
      • Stance based on Characteristics of Insurance Solicitation Styles
  • (4) Financial instruments businesses, etc.

    • (i) Improved security and convenience for investors

      The shift of funds from savings to investment cannot be accelerated without developing an environment in which ordinary investors can participate in investment activities with a sense of security. The FSA will properly implement the Financial Instruments and Exchange Act, check the financial soundness of each financial instruments business operator, and take a strict stance on unqualified business operators, in an effort to develop such an environment.

      • Disseminating and Instilling the Financial Instruments and Exchange Act
      • Eradicating Unqualified Financial Instruments Business Operators
      • Properly Managing Investors' Assets
    • (ii) Building a reliable market infrastructure

      In order to enhance the competitiveness of Japan's financial and capital markets, the FSA will ensure fairness and transparency in the markets, and bolster the confidence placed in the markets. In addition, the FSA will develop a highly secure and convenient market infrastructure in which a wide range of transactions can be executed smoothly and reliably.

      • Facilitating the Dematerialization of Stock Certificates
      • Fulfilling Public Role as a Market Intermediary
      • Further Enhancing Self-regulation Functions
    • (iii) Diversified, Sophisticated and Multinational Operations, Building Appropriate Internal Control Systems, etc.

      In order to create vibrant markets according to the Better Market Initiative (Plan for Strengthening the Competitiveness of Japan's Financial and Capital Markets), it is necessary to develop an environment in which financial instruments business operators can provide higher quality services based on their own innovative ideas. The FSA will closely monitor the management strategies of each financial instruments business operator, identify the extent to which their operations are diversified, sophisticated and multinational, and then check whether they have built appropriate internal control systems.

      • Responding to Revamp of Firewall Regulations
      • Aggressive Business Operations and Appropriate Internal Controls
      • Managing Risks commensurate with Aggressive Business Operations
      • Enhancing Proper Risk Assessment of Securitized Products and Disclosure of Information
      • Dealing with Various Funds

3. Materializing "Better Regulation"

Improving the quality of financial regulation is important in order to make Japan's financial markets more competitive. Also, financial regulation should place a greater emphasis on voluntary efforts and innovative ideas by financial firms, in light of the current phase of Japan's financial sector where it should continue and further refine its efforts to stabilize the financial system, protect customers, and establish and maintain fair and transparent financial markets.

Under these circumstances, the FSA will continue to be engaged in the efforts to solve supervisory issues in program year 2008 based on "better regulation" which centers on the following four pillars. The agency will have all its supervisory staff appreciate the concept and materialize it by the following efforts.

  • Optional combination of rules-based and principle-based supervisory approaches
  • Timely recognition of priority issues and effective response
  • Encouraging voluntary efforts by financial firms and placing greater emphasis on providing them with incentives
  • Improving the transparency and predictability of regulatory actions

For the purpose of enhancing the effectiveness of such efforts, the FSA will endeavor to improve the skills of its staff by such means as cultivating and hiring experts, and enhancing training programs.

Based on the supervisory policies mentioned above, FSA will continue to implement supervision of financial institution with both effectiveness and efficiency, while paying attention to their self-help efforts and innovative actions.

1 http://www.fsa.go.jp/policy/bmi/index.html

Requests for FY2009 Tax Reform

On September 1, the FSA submitted the "Requests for FY2009 Tax Refrom" to the Ministry of Finance and the Ministry of Internal Affairs and Communication.

This year, for the purpose of strengthening the competitiveness of Japan's financial and capital markets, we have requested tax measures required to promote:

1. Changes in investment trends (''from savings to investment''); and

2. Building of an environment to facilitate domestic and foreign investments

1. In order to promote changes in investment trends (''from savings to investment''), we requested:

(i) Creation of a "Japanese version of ISA" (tax-free accounts available for small sum, long-term investment)(Request for development of small investors through asset formation based on small-sum, continuing and long-term investments)

(ii) Introduction of tax-free investments for senior citizens(Request to offer senior citizens security in old age, in view of the fact that citizens aged 60 and over hold 60% of total financial assets in the country and nearly 70% in stocks and investment trusts, etc.With the decline in interest earnings in recent years in the low-interest financial environment, income from dividends is growing rapidly in importance in the budgets of senior citizens and can therefore be called "second pensions")

(iii) Consideration of investor convenience in preferential measures under the securities taxation system

(iv) Improvement of the defined contribution pension fund (401k) system

(v) Broader scope in aggregation of profit and loss for financial products

and others.

2. To build an environment that facilitates domestic and foreign investment,
requests have been made to review partnership investment fund taxation (PE No.1) .

A request has been submitted to enable foreign investors investing into a collective fund in Japan not to be held liable for reporting such investments in Japan.

Similar problems existed in the past in the case of bulk delegation of investment to a Japanese investment management service, which was addressed in the 2008 tax reform.

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