FSA Newsletter　No.87 2010

photo 1 photo 2

First Press Conference
Minister Jimi (September 18)

Greeting at meeting to exchange opinions
with financial institutions
Minister Jimi (at Tokai Local Finance Bureau)
(September 27)

Contents

Photo Gallery

*Provides photos and information on meetings, etc. attended by the Minister, Senior Vice Minister and Parliamentary Secretary.

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Former Senior Vice Minister Otsuka giving instructions to FSA employees
(September 24)

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Senior Vice Minister Azuma giving instructions to FSA employees
(September 24)

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Former Parliamentary Secretary Tamura giving instructions to FSA employees
(September 24)

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Parliamentary Secretary Wada giving instructions to FSA employees
(September 30)

Featured

FY2011 Request for Tax Revisions

At the end of August, the FSA put together and published its “FY2011 Request Items for Tax Revisions,” and submitted its request to the Ministry of Finance and Ministry of Internal Affairs and Communications. This FY2011 Request for Tax Revisions considered the “New Growth Strategy - Blueprint for Revitalizing Japan -” (June 18, 2010 Cabinet Decision), requesting necessary tax measures for the aim to achieve a “new financial market-based nation,” with the following concepts as pillars.

Ο Main Specific Request Items

1. Contribute to sustainable growth of the economy

♦ Considering current economic and financial conditions, extend lower tax rate for listed shares etc.

♦ Expand profit/loss offset scope and loss carryforward period for financial instruments

2. Make Japan the main market as well as the main player in Asia

♦ Tax reforms necessary for Islamic finance

♦ Tax reforms necessary for securities lending

♦ Change of the international tax principle (from “entire income principle” to “attributable income principle”)

3. Expand investment of the people’s financial assets in ways that enable the people to obtain affluence

♦ Measures required to enhance convenience of designated accounts

♦ Move to separate self-assessment taxation of OTC derivative transactions, etc.

For details, please go to the FSA’s web site and access FSA’s FY2011 Request for Tax System Revisions (August 30) at the Press Releases section. (Available in Japanese only)

[Topics]

Basic Policy and Plan for Financial Inspections in Program Year 2010

In order to clarify the basic framework for inspection operations and inspection priorities in the current program year (July 1, 2010 to June 30, 2011), the FSA created and published its “Basic Policy and Plan for Financial Inspections in Program Year 2010.” A summary of the basic policy for financial inspections in program year 2010 is explained below.

1. Introduction

Although the Japanese economy has been steadily recovering, there are risk factors, such as a possible downturn of the world economy, changes in the financial and capital markets, and the influence of deflation. Under such circumstances, financial institutions are expected to function as a backup supporter of the real economy and firms.

In view of such situations, the basic objectives of financial inspections in the current program year should be (i) to examine whether financial institutions have developed procedures and arrangements to play a role in smooth and appropriate financing to borrowers and to provide good-quality financial products and services to users, and also (ii) to examine whether financial institutions have developed a sufficient financial base to play such a role and a robust and comprehensive risk management system.

2. Basic Policy for the Conduct of Inspections

When conducting inspection activities, the FSA will implement its operating policy of improving the quality of financial inspections (Better Regulation). To be specific, based on the five principles1 mentioned in the preamble of the Financial Inspection Manual, the FSA will work on deeper verification through mutual discussions.

Also, as part of its activities to develop the Better Regulation initiative, the FSA is consistently and systematically implementing a comprehensive action plan (Action Plan II), enhancing its coordination with auditors and with related institutions such as the Bank of Japan and overseas authorities, and working to reduce the workload on financial institutions due to financial inspections.

3. Basic Framework for Inspections

In the current program year, from the perspective of improving the effectiveness of financial inspections and reducing the workload imposed by inspections of financial institutions, the FSA will integrate the on-site data

1 (1) Inspection Focusing on Important Risks, (2) In-Depth Analysis and Clarification of Causes of Problems Necessary for Fundamental Improvement, (3) Identification of Problems, Evaluation of Appropriate Improvement Efforts and Examination of Static and Dynamic Aspects, (4) Explanation of the Basis for Ratings and Pointing out Problems, and Clarification of Items to Be Considered for Improvement, (5) Accurate Understanding of Examination Findings (Sense of Satisfaction).

collection and analysis function of inspection bureaus with the supervisory bureau’s off-site monitoring data collection and analysis function, building stronger on- and off-site seamless monitoring. It will thereby work to reduce the workload imposed by inspections of financial institutions, and promote more focused financial inspections. This is also described in the basic inspection frameworks for each business form, for example the FSA will inspect major banks basically through targeted inspections which narrow down the inspection areas and conduct theme-specific inspections covering all major banks as necessary.

4. Priority Inspection Items

  • (1) Development of Governance System

    In order for financial institutions to exercise the financial intermediary function, implement thorough legal compliance and protection of customers, and accurate management of various risks, leadership and commitment of the management based on proper business management is critically important. From this perspective, in the current program year, the FSA will focus on examining whether the financial institution adequately analyzes and deliberates strategic objectives based on its management policy, and whether its strategic objectives and various risk management policies have solidly penetrated through the entire organization, and have been implemented. In addition, the FSA will examine whether directors and auditors are holding substantive discussions at meetings of the board of directors, and performing the duties of making decisions concerning business execution and supervising business execution.

  • (2) Further Promotion to Facilitate Financing

    It is expected that financial institutions will, with due attention to ensuring their sound and appropriate business operations, promote the facilitation of financing, while providing proactive support toward improved management of debtors. In program years 2008 and 2009, the FSA focused on examining whether financial institutions have developed procedures and arrangements that enable them to smoothly and actively exercise the financial intermediary function based on appropriate risk management while taking into consideration the actual circumstances of SMEs, etc. In the current program year, in addition to such consideration, the FSA will continue to focus on examining whether financial institutions have developed procedures and arrangements to be able to demonstrate a smooth and active financial intermediary function, while sufficiently fulfilling their consulting function.

    Specifically, the FSA will focus on examining whether financial institutions have developed procedures and arrangements for providing loans that ensures the smooth exercise of the financial intermediary function (the borrowing company should be evaluated with due consideration of unquantifiable factors such as technological capability and the abilities of managers) while making conscientious efforts to grasp the actual circumstances of the debtors, whether financial institutions have developed procedures and arrangements for taking required measures stipulated in Article 6 of the Act for Financial Support for Small and Medium-sized Companies, etc. The FSA will also focus on examining whether financial institutions have developed procedures and arrangements for actively engaging in steady efforts on a daily basis, such as management consultations by visiting their customers, and for providing conscientious management consultations and guidance to SMEs, and supporting their creation of management improvement plans at each stage of their lifecycle. If superior initiatives are recognized in management consultation, the FSA will evaluate them positively in financial inspections.

  • (3) Development of Risk Management System

    Regarding development of risk management systems, the same five items are raised as in the basic policies of the previous program year. Regarding comprehensive risk management, as transactions made between financial institutions are becoming more and more advanced and complex due to the evolution of financial engineering, financial institutions need to develop a risk management system while taking into consideration the possibility that risks that do not fit any conventional risk category will arise. In addition, it is also necessary to develop an appropriate management system with respect to the main risks (interest rate risk in bank accounts, etc.) that need to be considered in Basel II/the second pillar (interest rate risks in the banking book, etc.). Accordingly, in the current program year, the FSA will focus on examining whether financial institutions have developed comprehensive risk management systems commensurate with the size, characteristics and risk profile of their business.

    For credit risk management, the FSA will focus on examining whether financial institutions have developed a credit risk management system with due consideration of their management strategies as well as their size and characteristics, whether they adequately grasp the actual state and risk profiles of schemes related to large-lot credit exposure and complex forms of credit exposure such as project finance, whether they properly conduct screening and manage credit exposure in a manner suited to their own circumstances, and whether the credit management division of a financial institution is properly revising debtors’ credit ratings and makes efforts to exercise predictive control regarding such debtors appropriately.

    For group-wide risk management, establishing a robust risk management system for a whole group is expected to contribute to the enhancement of the international competitiveness of the Japanese financial institutions. Therefore, in the current program year, the FSA will focus on examining whether an inclusive risk management system has been developed on a group basis.

    For risk management systems at insurance companies, the FSA will focus on examining whether they have developed management systems for asset management risk and insurance underwriting risk etc., in light of the significant changes occurring in the domestic and foreign economic and financial environments.

    For information technology risk management, the FSA will focus on examining whether the management is adequately committed to information technology risk management, rather than leaving it to experts, whether the financial institution has identified all risk events that could have a significant impact on or cause a significant problem for customers or settlement systems and has taken measures to deal with such events, etc.

  • (4) Protection of Customers and Improvement of Users’ Convenience

    The protection of customers and the improvement of users’ convenience by financial institutions contribute not only to the sound development of the national economy but also to the stability of the financial system by increasing the trust of the people in them. It is important that financial institutions enhance their competitiveness by providing financial products and services using innovative ideas based on the principle of ensuring a sense of security and trust through the implementation of measures to thoroughly protect customers.

    Therefore, regarding protection of customers, the FSA will focus on examining for thorough management of information on customers, ensuring appropriate and safe financial transactions, appropriate responses to consultation requests and complaints, and appropriate explanations to customers. The FSA will also positively evaluate excellent financial institutions’ activities to improve convenience for users.

5. Conclusion

Based in its basic policies, the FSA will perform appropriate and effective inspections from the standpoints of financial institution users and the people.

*For details, please go to the FSA’s web site and access “The Basic Policy and Plan for Financial Inspections in Program Year 2010” (August 27, 2010) at the Press Releases section.

Panel on the Certified Public Accountants System Interim Report

For the CPA exam, to enable diverse human resources including working people to aim to become CPAs, the Certified Public Accountants Act was amended in 2003, and the new exam system was implemented in 2006.

However, looking at the situation thereafter, people who passed the exam had difficulty finding jobs in companies, nor was there an increase in the number of working people who take or pass the exam. On the other hand, one also sees a fall in the number of hires at audit firms due to the worse business environment. This is creating a situation where even if people pass the exam, they cannot get jobs at audit firms, thus many people cannot fulfill the practical experience requirement to become a CPA.

Considering this situation, the CPA exam and qualification system was studied since last December in the Panel on the Certified Public Accountants System, with Senior Vice Minister Otsuka serving as Chairman. Its results were put into an interim report on July 30 this year.

The interim report presented the following concepts:

  • Policy to reduce as much as possible the number of people who pass the test but cannot obtain the qualifications to become a CPA (people waiting to qualify)
  • Establish a new qualification to foster human resources who support diverse non-audit services and work in companies (for example, “Finance Accountant” (tentative name))
  • Further enhance the quality of CPAs who support attestation work
  • Ensure quality after qualification obtained

Comments were invited on this interim report from August 4 to September 2.

Based on the comments received, the CPA exam and qualification system will be investigated further, from the perspectives of resolving the issue of people waiting to qualify, and fostering human resources in the audit and accounting fields who can handle environmental changes such as globalization.

*For details, please go to the FSA’s web site and access “Panel on Certified Public Accountant System” Interim Report published and invitation to comment (August 4, 2010) at the Press Releases section. (Available in Japanese only)

“Minister’s Mailbox” Opened for Policy Recommendations

Minister for Financial Services Shozaburo Jimi opened the “Minister’s Mailbox” on August 27, to solicit policy recommendations on general topics of government administration of finance, from staff and from a wide range of external people.

Recommendations received in the “Minister’s Mailbox” reach Minister for Financial Services Shozaburo Jimi, and are also sent to the relevant department in the FSA, to be referred to for FSA policies.

*For details, please go to the FSA’s web site and access “Minister’s Mailbox” opened for policy recommendations (August 27, 2010) at the Press Releases section of the FSA website. (Available in Japanese only)

This banner is placed at the top of the FSA Japanese website. (Available in Japanese only)

Implementation of the 2010 Campaign for Enhanced Consultation for Multiple Debtors

The Multiple Debtors Countermeasures Headquarters established in the Cabinet organizes the Campaign for Enhanced Consultation for Multiple Debtors from September to December each year, jointly sponsored by the Bar Association, the Japan Federation of Shiho-Shoshi Lawyer’s Associations, and the Japan Legal Support Center. These are free consultation meetings for multiple debtors, held at local governments throughout Japan.

This year, with the full implementation of the Amended Money Lending Business Act, there are concerns that increasing numbers of people face difficulties in new borrowing and repayments, with an increase in black market lending, etc. In order to meet the need for an improved system which could provide further education about the system, enhancement of initial consultations and consultations for business operators, and increased consultations, this campaign was also conducted this fiscal year from September to December.

During this 2010 Campaign for Enhanced Consultation for Multiple Debtors, consumers and business operators were provided free consultation meetings by prefectures, and bar associations, Shiho-Shoshi Lawyers’ Associations, small and medium enterprise organizations (Note), and Local Finance Bureaus in the prefectures.

The main points of this fiscal year’s campaign are as follows.

Ο Education about the System

Considering it is now immediately after complete implementation of the Amended Money Lending Business Act, work is done to spread knowledge of the system, such as by distributing leaflets at free consultation meetings.

Ο Enhanced Initial Consultations (Stronger cooperation with related departments)

With the complete implementation of the Amended Money Lending Business Act, in order to find people facing new difficulties in new borrowing and repayment, and make it possible to connect them with consultation places, the list of multiple debtor consultation places in each prefecture is provided to related departments such as tax collection units of each prefecture.

Also, people who come for multiple debtor consultations will be guided as needed to other related institutions, or related departments of each prefecture (cooperate with welfare units for life rebuilding, and in cases where there is fear of suicide, introduce departments in charge of suicide countermeasures, etc.).

Ο Enhanced Consultations for Business Operators

Previous campaigns mainly provided consultations to consumers, but considering the complete implementation of the Amended Money Lending Business Act, there are concerns about impacts on businesses which borrowed bridge loans from money lending business operators. Therefore, explanatory meetings for business operators are also being enhanced with the cooperation of small and medium enterprise organizations.

Ο Multiple Debtors Free Consultation Meetings Publicized via Money Lending Business Operators

Article 12-9 of the Money Lending Business Act obligates money lending business operators to introduce multiple debtors to appropriate counseling institutions. It is also considered very effective if money lending business operators inform their users about free consultation meetings.

Therefore, Local Finance Bureaus and prefectures inform the money lending business operators under their supervision about times and places of free consultation meetings. Then in cases where the money lending business operator deems a user needs consultation on borrowing or repayment, the money lending business operator is requested to give the user guidance and information on free consultation meetings.

During the campaign, information on free consultation meetings planned at each site is available at the following phone numbers. For consultations, inquire via the contacts below.

Note: These small and medium enterprise organizations are chambers of commerce, societies of commerce and industry, and small business associations throughout Japan.

Money Lending Consultation Desk (*) : 0570-001127 & 03-3506-7229
* Reception at Money Lending Consultation Desk is until December 28
Counseling Office for Financial Services Users : 0570-016-811 & 03-5251-6811
Japan Legal Support Center Call Center : 0570-078374 & 03-6745-5600
Consumer Hotline : 0570-064-370

*For details, please go to the FSA’s web site and access Decision Document and Execution Outline (August 31, 2010) at the Press Releases section. (Available in Japanese only)

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