[International Affairs]

On April 22, 2009, the Japan-EU High Level Meeting on Financial Issues was held in Brussels. This meeting has been providing opportunities for both Japan and the EU to share information on the financial regulations and make the necessary adjustment of positions. The representatives who attended this year's meeting include Mr. Junichi Maruyama, Deputy Commissioner for International Affairs of Japan's Financial Services Agency (FSA), and Mr. Jörgen Holmquist, Director General of DG Internal Market and Services of the European Commission.

First, FSA and Commission officials discussed the impact of the financial crisis on their own financial systems. Then, the FSA briefed the Commission services on the progress made in the Better Market Initiative and the implementation of the revised Act on Special Measures for Strengthening Financial Functions.

The Commission services set out the actions taken in view of reinforcing the regulation and supervision of financial services. Special attention was given to the Commission's recent legislative proposals, as well as to the follow-up to the de Larosière report and the EU's future regulatory agenda.

Both sides exchanged views on the regulation of credit rating agencies. The Commission services presented the latest developments regarding the proposed new legislative framework, while the FSA presented its reform plans. Moreover, insurance-related matters were also discussed. The FSA presented recent legislative reforms in the insurance sector in Japan. The Commission services provided latest information on the Solvency II Directive and the next steps for implementation.

Accounting and auditing issues were also an important part of the agenda. The Commission services recalled the Commission decision to grant Japanese audit firms a transitional regime until July 2010, which represents an interim step toward mutual reliance on each other's public oversight systems. The Commission services presented the state of play regarding a possible decision on the adequacy of the competent authorities in certain third countries concerning the access and transfer of audit working papers. The FSA provided an update on recent developments in the public oversight regime of foreign audit firms.

The Commission services also reported on the decision adopted on December 12, 2008, which recognized standards of the Japanese Generally Accepted Accounting Principles equivalent to the International Financial Reporting Standards. The Commission services welcomed Japan's draft interim report on the Application of International Financial Reporting Standards in Japan. The Commission services and the FSA agreed on the need to reinforce the governance of the International Accounting Standards Committee Foundation.

*The next meeting will take place in Tokyo (on a date to be announced).

*For details, please access FSA and European Commission hold Japan-EU High Level Meeting on Financial Issues (May 1, 2009) on the FSA website.

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On May 12 and 13, 2009, a meeting of Standing Committee 3 (SC3) of the International Organization of Securities Commissions (IOSCO) was held in Tokyo.

The IOSCO is an international organization consisting of securities market regulators, stock exchanges, and other organizations from over 100 countries and territories. It has ordinary members (securities market regulators), affiliate members (other regulators), and affiliate members (SROs, etc.) totaling 191 organizations (as of the end of November 2008). The General Secretariat of the IOSCO is located in Madrid, Spain.

The SC3 reviews and discusses issues related to the regulation and supervision of market intermediaries in a cross-border environment. The committee consists of the member regulatory authorities from 16 countries and territories in Europe, the United States, and Asia, and is chaired by Tokio Morita, Director of Securities Business Division, FSA.

It is considered that the IOSCO will play a significant role as an international forum in resolving in the current financial market turmoil. In response to the onset of the financial crisis, the IOSCO quickly launched the Task Force on the Subprime Crisis, which analyzed the causes of the financial crisis and recommended specific countermeasures. In addition, last year, it launched three Task Forces (on Unregulated Financial Markets, Unregulated Financial Products, and Short Selling), which worked together with the Task Force on Credit Rating Agencies and the Task Force on Accounting Issues to support G-20 aims.

Reference 1: Report on the Subprime Crisis: Final report
(Report prepared by IOSCO Technical Committee)

Reference 2: The three IOSCO Task Forces established last year:
(IOSCO Media Release on November 25, 2008)

Against this background, the SC3, in collaboration with the Task Forces mentioned above and other groups, has been making efforts to address issues related to the regulation and supervision of market intermediaries such as securities companies. At the SC3 Tokyo meeting, active discussions were held on issues such as those concerning the disclosure of collective investment schemes such as investment trusts at the time of sale as well as those related to the liquidity risk management practices and internal controls of market intermediaries based on the recommendations of the Task Force on the Subprime Crisis. In addition, the SC3 has started to consider the need to address the issue of adequacy when selling complex financial products and of protection of customers' assets at the time of bankruptcy of securities companies. The outcome of this meeting will be reported at the IOSCO Technical Committee Conference that is scheduled to be held in Israel, in June 2009. Based on the results of the conference, further discussions will be held at the next meeting.

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From April 27 to 29, 2009, the 5th Meeting of the International Forum of Independent Audit Regulators (IFIAR) was held in Basel, Switzerland. Chairman Akira Kaneko and other representatives from the Certified Public Accountants and Auditing Oversight Board (CPAAOB) / the Financial Services Agency (FSA) participated in the meeting.

The IFIAR is an association of audit regulators established to promote cooperative relations and share auditing experiences between various countries, for the enhancement of auditing quality. At present, it consists of 31 jurisdictions including the US, UK and other leading countries (as members) and 8 international organizations (as observers).

At this meeting, members elected Mr. Steven Maijoor, current Vice-Chairman, as new Chairman of IFIAR for a two year term and Mr. Paul Boyle, current Chairman, as Vice-Chairman for the period up to IFIAR's next plenary meeting in September 2009. Moreover, IFIAR members reached agreement in principle to establish shared Member funding for IFIAR's core administrative and organizational requirements with effect from 2010.

In addition, there were exchanges of views on audit regulators' activities such as the registration and notification of foreign audit firms, on the audit quality, and on the supervision of globally operating audit firms. Following the Oslo Meeting (April 2008) and the Cape Town Meeting (September 2008), the representatives of the so-called six major international audit networks were invited to the meeting for exchanges of views on responses to recent economic crisis by auditors and by audit regulators.

Furthermore, regarding the inspection workshop for IFIAR members that has been held annually to provide an opportunity for the sharing of techniques and experiences in audit inspections, a core area of focus for IFIAR, it was decided that the fourth workshop will be held in Paris in February 2010.

The CPAAOB plans to continue to participate in these meetings and to enhance further improvement of audit credibility and audit quality in Japan, by building and strengthening cooperation and collaborative ties with audit regulators in other countries.

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This section provides information regarding the hot topics of the moment, selected from questions and answers given at the Minister's press conferences, etc.

If you wish to find out more, we invite you to visit the “Press Conferences” section of the FSA website.

A: I presume that the U.S. government has conducted the stress tests in a conscientious manner. The fact that the capital shortfalls found as a result of the tests were no larger than the figure that can be covered by the funds secured through existing budgetary measures indicates that the condition of the entire financial system is far better than we thought, so the results were reassuring for us.

In addition, many banks do not need any capital injection. So, if capital injection into banks with a capital shortfall begins, it will contribute to stabilizing the financial system further.

[Extract from the press conference on May 8, 2009]

A: As stock prices are a leading indicator of the economy, the (Nikkei Average's) rise to around 9,400 is very welcome. I presume that this has significantly improved the state of the assets held by banks as well as life and non-life insurance companies. I strongly hope that stock prices will stabilize further.

[Extract from the press conference on May 8, 2009]

A: As the megabanks are private-sector banks, it is natural that they wish to raise capital from the market on their own. We have been worried about whether it is possible for them to do so under the current market conditions. However, we are very glad that they have the prospect of raising capital from the market, and they will not necessarily have to use funds made available by the government. As these funds are intended for emergency use, it would be ideal if they can raise capital from the market.

[Extract from the press conference on May 15, 2009]

A: Banks' losses reflect declines in net business profits and valuation losses on their holdings of stocks and other assets. There may also be other losses. Banks are setting aside reserves to cover losses, and are writing off losses and enhancing their capital bases. The fact is that compared with when major banks previously tried to raise capital on their own, there are much more people who subscribe to the offering of new shares, so capital-raising by financial institutions are now proceeding more smoothly than expected. I believe that banks' management approaches are right as they have properly written off losses or set aside loss reserves and are moving to increase their capital as necessary in order to ensure sound management. Meanwhile, regional banks have been greatly affected by the condition of the real economy. However, there is apparently no financial institution that is in a crunch, so I believe that Japan's financial system as a whole maintains a high degree of soundness.

[Extract from the press conference on May 19, 2009]

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