Financial institutions in Japan have lost a great deal of international competitiveness during their struggle to resolve a host of problems arising from the collapse of the bubble economy, including their massive nonperforming loans. They have also suffered a significant decline in their standing in the global financial market. Swift measures should be taken to revive their power to compete internationally.

The government has submitted to the Diet a bill aimed at revising the Financial Instruments and Exchange Law. A central pillar of the bill is reform of the current system for the purpose of expanding the list of financial products traded in the market, while also increasing the number of market players and attracting more funds from both domestic and foreign investors.

Specific measures include a plan to establish a market in which foreign and start-up companies would be able to get themselves listed through simple information disclosure. The bill would also expand the list of investment choices offered under exchange-traded funds that are popular with institutional and individual investors alike, to include such products as precious metals.

Another pillar of the bill is to relax regulations on the scope of services provided by financial institutions. The plan is aimed at making it easier for banks to undertake new business operations, thus shoring up their international competitiveness.

The bill would ease controls on bank officials taking up executive positions at securities companies and vice versa while also relaxing regulations on banks and brokerage houses sharing their respective customer information. The bill would also ease some restrictions on banks holding stakes in other corporations. Measures include an end to a ban on banks and insurance firms being engaged in greenhouse gas emission trading.

Put savings into circulation
Japan needs to take full advantage of financial assets held by its people, worth 1.5 yen quadrillion, and investment money from oil producers and other foreign countries. This will be essential in keeping Japan's economy vibrant despite its declining population.

We hope the bill will serve to increase the role of this nation's financial sector. Doing so would transform Tokyo into a more attractive money market that could draw more funds from overseas while highly competitive financial institutions could efficiently provide money for industrial sectors that require funds.

Easing regulations on financial products trading is certain to benefit financial institutions, granting them greater freedom of action. Given this, financial institutions should exercise greater self-discipline in their conduct of business.

It has been argued that banks and securities firms sharing their customer information could undermine their customers' interests. For example, banks that seek to recover loans from companies could use their securities subsidiaries to ensure such corporate customers increase their capital when they have no need to do so.

Better monitoring
To make sure there will be no such harmful effects, the bill states that financial institutions must keep a closer watch on their own business operations. Each financial institution must strive to achieve this goal by, for example, closely examining business transactions conducted by corporations under its wing. It will also be necessary to set up a division tasked with blocking inappropriate transactions.

Expansion of the domestic financial market must be complemented by efforts to ensure the fairness of the market. The bill incorporates a measure to impose greater penalties for unfair business transactions.

For years, critics have said that the amount of penalties to be imposed on offenders under the current system is disproportionately low, compared with the amount of profits unlawfully gained by them. To rectify this, the bill would use a new calculating formula to nearly double the amount of penalties to be paid by offenders charged with insider trading, for instance.

Will the bill fulfill its purpose in this respect?

Some specialists have insisted on raising the amount of penalties to be paid by offenders to levels that would constitute harsh punishment. The issue should be further addressed during Diet discussions on the bill.