On December 12 2008, the new Financial Instruments and Exchange Act took effect. This law, as well as other laws and regulations related to it, has been amended mainly to: (i) create a new market for professional investors; (ii) revamp the firewall regulations for banks, securities firms and insurance companies; and (iii) expand the administrative monetary penalty system. Please note that the amendments regarding firewall regulations have not yet taken effect but are scheduled to take effect by June 12 2009.
Expanding the services of banks
After amendment of the firewall regulations, banks will be able to offer expanded services. The new services will include: (i) emissions trading; (ii) serving as an agent or intermediary of a foreign bank; (iii) commodity derivative transactions through physical settlement, which are permitted under certain conditions (previously, commodity derivative transactions were only permitted through net settlement); and (iv) varied services provided through subsidiaries of a bank (as a result of the reduced regulations, banks will be able to hold more varied companies as subsidiaries). Regarding (iv), banks will be permitted to have a company that is in the process of rehabilitation or a company that deals in Islamic finance as a subsidiary. Therefore, banks will be able to become more deeply involved with a company that is going through rehabilitation by holding an equity interest in that company. Banks will also be able to provide Islamic finance services through their own subsidiaries, thus allowing them to handle financial transactions and banking for oil business-related customers.
Expanding the administrative monetary penalty system
The administrative monetary penalty system was introduced in 2005 and is a deterrent against market misconduct such as insider trading, market manipulation, dissemination of unfounded rumours, trading by fraudulent means and false statements in offered disclosure documents. The monetary penalty system has been expanded in two main respects: the amounts of administrative monetary penalties have been increased and the range of acts for which such penalties will be imposed has been expanded. First, so as to increase the amounts of penalties, the method for calculating such penalties has been revised, and it is expected that this will approximately double the amount of such penalties as compared with those before the amendment. Second, several new violations, such as providing false statements in offered disclosure documents or failing to submit tender offer bid disclosure documents, have been added to the list of actions subject to penalty. In addition, regarding insider trading, penalties were previously imposed only on those who committed violations using their own accounts. As a result of the amendment, the system has been expanded to cover acts by those who commit violations using an account held by a person or entity regarded as being substantially the same as the insider, such as a subsidiary or relative of the insider. Because the Financial Services Agency (FSA), which administrates the system, has no discretion to refrain from imposing the penalties (that is, once such prohibited market misconduct is discovered, a penalty payment order is automatically issued against a violator), the system is expected to be more effective as a result of the expansion.
The amendment of the FIEA aims to strengthen the competitiveness of Japan's financial and capital markets and to make them more fair.
Akira Matsuda and Akihiro Ishikawa
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