FSA Newsletter November 2006

   On Tuesday, September 26, 2006, Diet Member Shinzo Abe became the 90th Prime Minister of Japan and in the afternoon of that day, Diet Member Yuji Yamamoto assumed the post of Minister of State for Financial Services and for the ''Challenge Again'' Initiative.
Mr. Yamamoto, the Minister for Financial Services and for the ''Challenge Again'' Initiative, gave the following speech in his inaugural address at the Office of the Prime Minister:

   ''A policy of ''Challenge Again,'' to which Prime Minister and LDP President Abe made a public commitment during his election campaign, is a policy that had already been put together in its interim form in May of this year. He expressed this commitment by saying that he wants me to strive for the creation of a society wherein anyone who tries will be rewarded and, even if one fails, one can try again and again. I am eager to engage myself sincerely in this initiative by joining hands with the respective ministers who have a part in it.
   In the area of financial services of which I am now also in charge, I am committed to working hard on, and playing a leading role in, ensuring user protection, developing fair and transparent market functions and maintaining the credit order, which are the very purposes of the financial administration. Given the current need to store up vitality as we move away from a period of stability, I have a particularly strong wish to solve the multiple debt problem etc., the most serious hindrance to the implementation of the "Challenge Again" initiative. In wrapping up my speech today, I would like to seek your kind support in my tasks ahead.''

   After subsequently attending the imperial appointment ceremony and attestation ceremony held in the Imperial Palace, Minister Yamamoto attended a cabinet meeting. He then came to the Central Common Government Offices No. 4, in which the Financial Services Agency is located, to start his first day in office and presented himself for a post-cabinet-meeting ministerial interview.
   On the next day, on Wednesday, September 27, the succession procedure was conducted between Minister Yamamoto and former-Minister Yosano in the Minister's office; in the afternoon of that day, Senior Vice Minister Yoshimi Watanabe (for Economic and Fiscal Policy, Financial Services and the ''Challenge Again'' Initiative) and Parliamentary Secretary Kotaro Tamura (for Economic and Fiscal Policy, Financial Services and the ''Challenge Again'' Initiative) arrived to start their first day in office.

The first press conference by Minister Yamamoto (September 26)

Since the so-called Subparagraph 3 proceedings (temporary nationalization) were undertaken in relation to Ashikaga Bank on November 29, 2003 under the provisions of Article 102 of the Deposit Insurance Law following a deliberation by the Financial Crisis Response Committee, a variety of efforts have been made in the bank in the form of fundamental management reforms etc.
Recognizing that these efforts have steadily been bearing fruit, the Financial Services Agency (FSA) has decided to begin a specific examination as to which bank will take over Ashikaga Bank.
In selecting an acquiring bank, we intend to base our examination on the following three basic criteria:
- Sustainability as a financial institution
- Exerting functions of financial intermediation in the region
- Minimizing the public spending burden

The selection process will be carried out as follows:

First Stage: Propose that basic terms be required of the acqiring bank to solicit candidates (by announcing of public bidding details), and select candidates from which to request the submission of a business plan
Second Stage: Request the candidates selected during the first stage to submit a business plan to be implemented after the assumption of Ashikaga Bank. Forward the details of the plan to shortlist candidates from which the submission of terms of transfer, etc. are to be requested.
Third Stage: Request the candidates shortlisted at the second stage to submit terms of transfer as well as a business plan, with necessary revisions made, upon properly evaluating the corporate value of the Ashikaga Bank. Make a final decision on the assuming bank selection by examining the details of these submissions.

   We have chosen to organize a body called ''Working Group on the Choosing on Acquiring Party for Ashikaga Bank'' (Chair: Tsutomu Muramoto, Professor, Seijo University), a private advisory panel to the Commissioner of the Financial Services Agency, as a venue to receive advice from external experts given from expert points of view and seek inputs from the community as we proceed with the action items described above.
   Since its first meeting on Tuesday, September 5, the Working Group has thus far met three times, during which the governor of Tochigi Prefecture was invited, with the Minister for Financial Services present, to explain the community's views and requests etc. on the subject of selection of the acquiring party for Ashikaga Bank, and the Group also discussed basic terms to be required of a prospective assuming bank for public bidding purposes.
   The FSA aspires to make every effort to select an appropriate acquiring bank so that Ashikaga Bank will be able to secure trust from users in the region of and around Tochigi Prefecture and exert its financial intermediation functions in a sustainable fashion.

Governor Fukuda of Tochigi Prefecture submits to Minister Yamamoto a request concerning the Ashikaga Bank assumption. (October 16)

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Measures Taken by the FSA against North Korea

Following the unanimous adoption of a resolution by the United Nations Security Council on July 16 of this year, which contains a requirement of preventing the transfer of any financial resources in relation to North Korea's missile or weapons of mass destruction (WMD) programmes, the Japanese government responded by having cabinet consent on September 19 to the introduction of the ''Measures for the Prevention of the Transfer of Financial Resources, etc. in Relation to North Korea's Missile or WMD Programmes,'' thereby taking actions including the prevention of the transfer of financial resources under the Foreign Exchange and Foreign Trade Control Law (''Foreign Exchange Law''), to be initiated against parties involved in North Korea's missile or WMD programmes who have been designated as being subject to the measures for the prevention of financial resources transfer (15 organizations and one individual).
In accordance with the introduction of the above measures, the Financial Services Agency (FSA) has requested that financial institutions strictly fulfill customer identification obligations, and ensure that they report ''suspicious transactions'' under the Anti-Organized Crime Law.

In addition, another cabinet consensus was reached on October 11 in regards to measures pertaining to North Korea's recent nuclear test, including an import ban against North Korea, which subsequently led to the development on October 13 of the ''Emergency Interim Action Package Associated with the Import Ban Against North Korea.'' On the same day, the FSA accordingly made the following threefold request to organizations concerned, including the Japanese Bankers Association:

(i) Make widely known the contents of said package.
(ii) Request any parties who will be impacted by the import ban against North Korea to make appropriate efforts according to the actual circumstance, such as loan facilitation and debt moratorium for affected cases
(iii) Make sure that the organizations concerned follow up on these actions in an appropriate fashion

In addition to the three items above, the FSA requested in the same document, in the light of the cabinet decision of September 19, to continue taking firm action on customer identification and their obligation to report suspicious transactions.
On October 17, in connection with these actions, the FSA also told Local Finance Bureaus to follow up on and provide (i) an overview of the status of preparedness of each financial institution and (ii) the record of loan facilitation and debt moratorium efforts.

As the government is in the process of examining what actions it should take following the adoption of a U.N. resolution on sanctions against North Korea, the FSA is committed to paying continued attention to any future international efforts against North Korea and actions of financial institutions in Japan and taking appropriate measures as required.

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Publication of the pamphlet, the New Legislative Framework for Investor Protection
- Financial Instruments and Exchange Law -

The law for amending the Securities and Exchange Law and other financial laws and the law for abolishing and amending the related laws to implement the law for amending the Securities and Exchange Law and other financial laws were enacted during the previous ordinary session of the Diet and were then promulgated on June 14, 2006.

These legislative amendments cover a wide range of subjects abolishing four laws and amending 89 laws. In order to provide an easy-to-understand explanation in the form of an overview of these legislative amendments, the Financial Services Agency (FSA) had produced a pamphlet entitled ''New Legislative Framework for Investor Protection.''

The ‘Financial Instruments and Exchange Law' is explained in the pamphlet with the use of diagrams and illustrations by classifying it broadly into the following four themes:

	(1)	Establishing a cross-sectional legislative framework for user protection covering a wide range of financial products with strong investment characteristics (the so-called legal framework for investment services)
	(2)	Enhancing disclosure requirements
	(3)	Ensuring appropriate management of self-regulatory operations by exchanges
	(4)	Strict countermeasures against unfair trading

The pamphlet is distributed through Local Finance Bureaus and Local Finance Offices nationwide and is also posted on the FSA's homepage. In addition, an English version is posted on the FSA's English site. We hope that this will serve as a useful reference.

* Please also refer to the ''Overview of 'Financial Instruments and Exchange Law,''' a special three-part series published in the August/September, October and this issues of the FSA Newsletter, respectively.

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Minister Yamamoto received a courtesy call from Ed Balls, Economic Secretary to the HM treasury (November 6)	Minister Yamamoto, Senior Vice Minister Watanabe and Parliamentary Secretary Tamura went over the Tokyo Stock Exchange (November 20)