Japan’s ruling party is seeking legal changes to require that privately owned money management firms have their business reports audited by outsiders in a bid to avoid a recurrence of the AIJ Investment Advisors Co. case.
The Democratic Party of Japan will form a working team under its financial committee as soon as Thursday to discuss changes to rules governing money managers for pension assets, Tsutomu Okubo, a lawmaker who leads the panel, said in an interview in Tokyo Wednesday. Mr. Okubo expects a bill to amend the Financial Instruments and Exchange Law will win Cabinet approval as early as mid-March and then be sent to the Diet. Under current law, privately held money managers don’t need to hire external auditors to review their business reports.
Japan’s financial regulator on Wednesday began its biggest investigation of money managers following the Feb. 24 suspension of AIJ, which has failed to account for the more than $2 billion it oversaw for clients, including pension funds. The case has raised concern over the safety of retirement assets in Japan, where more than a fifth of the population is older than 65.
“The social impact from the AIJ issue is huge, and we want to avoid a second or third case like this,” said Mr. Okubo, a DPJ lawmaker and a former Morgan Stanley executive. “We need a swift remedy to prevent a repeat of this.”
AIJ had 122 contracts with domestic corporate pension funds and one with a foreign investor as of March 2011, according to filings with Japan Securities Investment Advisers Association. The Tokyo-based firm managed ¥185.3 billion ($2.3 billion) of clients’ assets as of that date, Labor Ministry figures show.
A total of 265 asset managers nationwide will be required to submit status reports to the FSA by March 14, the agency said in a statement Wednesday. The reports must contain details of a firm’s operations, contracts and their amounts, and any past complaints from customers.
Financial Services Minister Shozaburo Jimi on Tuesday pledged to consider revamping the inspection and supervision of pension asset managers, saying his agency won’t rule out any step to prevent a recurrence.
The regulator plans to compile a shortlist by late March of companies that may need extra investigation, a senior FSA official said at a press briefing on condition of anonymity because of the agency’s policy. The FSA would ask those firms to disclose information including their clients’ assets under management, the rate of returns and the status of derivatives trading, according to the statement.
AIJ hasn’t been accused of wrongdoing following its suspension by the FSA. Any action against it depends on the findings by the Securities and Exchange Surveillance Commission, the financial watchdog under the agency, Mr. Jimi said.
