Japan

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Regulators: Japan

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This factsheet describes the key features of financial regulations in Japan

Introduction

The FSA is also responsible for ensuring the solvency of individual financial institutions. The FSA has legal authority over all financial institutions, including foreign banks operating in Japan. The FSA's inspection is designed "to ensure sound and appropriate management of the bank" (from Article 24 to 27 of the Banking Law, Article 25). If banks do not comply with documentation submission deadlines it may result in legal penalties. Banking Law prohibits false notification (No. 13 of Article 3, Chapter 1) resultin gin Suspension of operations (Article 26) & Revocation of license (Article 27) in worst case scenarios.

Financial institutions in Japan are regulated mainly for the purpose of protecting banks' investors and depositors. Regulators monitor financial institutions through regulatory reports and periodic direct inspections. Japan's financial sector is supervised by three main bodies: 1. Financial Services Agency (FSA) 2. Securities and Exchange Surveillance Commission (SESC) 3. Bank of Japan (BOJ) Certain reports are also required by other organisations for public disclosure. Tokyo Stock Exchange (TSE) Osaka Securities Exchange (OSE)

Securities and Exchange Surveillance Commission (SESC)

Securities and Exchange Surveillance Commission (SESC) was established to monitor fair trading for the Securities and Exchange Commission (Japanese Version SEC) under the FSA, as part of the FSA body. The SESC is the main regulator for securities in Japan. It conducts daily market surveillance and inspections of financial instruments and firms. Additionally the SESC investigates administrative monetary errors and inspects disclosure documents to avoid securities fraud. In cases where misconduct impairs the fairness of trading are found, legal penalties will be given. Functions of the SESC

The regulators Financial Services Agency (FSA)

The Financial Services Agency (FSA) is part of the Japanese government. It is controlled by the Minister of Finance and the FSA is the main regulator for banks in Japan. The role of the FSA is to maintain a stable financial system and to build a strong financial system in Japan. The FSA maintains a smooth flow of investment funds to support the economic development of the market and it protects investor's deposits, securities and insurances. Its main responsibilities are: inspection and supervision of financial institutions private financial system planning monitoring and supervision of securities trading.

Market surveillance Inspections of financial instruments business operators Administrative monetary penalties investigation Disclosure documents inspection Enforcement investigation and filing criminal charges Cooperation with overseas regulators Policy proposals Efforts to reach out to market participants and investors

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Bank of Japan (BOJ)

The Bank of Japan (BOJ) is the central bank of Japan, and is responsible for setting the bank rate. The BOJ's contribution is stated under "Bank Law" Article 37 to 39 (temporary lending to financial institutions, controlling financial industry credit, managing the smooth settlement system of funds) for the sound development of the national economy in Japan. Unlike the FSA, the BOJ has no legal position of enforcement to financial institutions. The BOJ's appraisal of financial institutions is the financial agreement (Appraisal contract) between the BOJ and the bank. Therefore there are no legal penalties from the BOJ. However, the BOJ can publicise factual based content from the appraisal to put pressure on the financial institutions. Thus to avoid the risk of ill reputation banks are likely to comply.

Reporting challenges

Accounting standards in Japan (J-GAAP), require the following elements and have to be included in financial statements: 1. 2. 3. 4. Balance sheet (B/S) Income statements (P/L) Cash flow (C/F) Statement of changes in net assets (S/S)

Financial statements are mandatory under "Corporation Law", "Financial Instruments and Exchange Law" and other laws which Legal Directors of the corporations in Japan are subject to. Financial institutions as well as other corporations, have a duty of reporting according