regulation

FSA meetings with industry during January 2025

Norbert Gehrke

01 Mar 2025 — 5 min read

During January 2025, the Financial Services Agency (FSA) met with the industry associations for major banks, regional banks, shinkin banks, trust banks, securities dealers, and investment trusts.

1. Common Topics Across Industries

Several key themes emerged consistently across the FSA's discussions with different financial industry sectors:

1.1 Asset Management and Investment Nation

The FSA emphasized the importance of fostering a shift "from savings to investment" to support economic growth. This included promoting:

NISA (New Individual Savings Account) Usage: Expanding the utilization of NISA was a central strategy. The FSA urged financial institutions to proactively educate and inform the public about NISA, ensuring they understand its benefits and can utilize it effectively for long-term asset building. There was a focus on user-friendliness.
Product Governance: Promoting responsible product development and management was crucial. The FSA highlighted the need for financial institutions to offer products that genuinely serve customer interests and to manage these products with sound governance principles. The goal was to shift financial firms to acting in the best interest of clients.
Promoting Long-Term, Diversified Investing: The FSA reiterated the importance of encouraging individuals to adopt long-term, diversified investment strategies to mitigate risk and achieve sustainable returns.
Investor Education: The FSA stressed the importance of promoting greater financial literacy among the public, empowering them to make informed investment decisions.

1.2 Financial System Stability and Soundness

The FSA emphasized the need for financial institutions to maintain financial soundness, manage risks effectively, and adapt to changing economic and market conditions. This encompassed:

Adaptation to Changing Interest Rate Environment: With the Bank of Japan altering monetary policy, financial institutions were urged to carefully assess the impact on their balance sheets and operations and to adjust their strategies accordingly.
Risk Management: The FSA underlined the importance of robust risk management practices to address various challenges. Emphasis on identifying and understanding various risks.
Internal Audit Enhancements: The agency promoted the need for more robust and sophisticated internal audit functions within financial institutions. It highlighted the importance of internal audits for effective governance.

1.3 Customer-Centric Operations

The FSA emphasized that financial institutions must prioritize customer interests. They also noted that it should extend to the product creation and sales levels, including the management of these items.

"Best Interest" Obligations: They also introduced laws to promote the "best interest" obligations for various financial and business firms.
Addressing Information Asymmetry: This included finding ways to lessen the customer vs financial firm information asymmetry.

1.4 Countering Financial Crime

The FSA stressed the need for vigilance against illicit activities. They also noted that there should be a follow up performed to help ensure laws are being kept.

Anti-Money Laundering (AML) Measures: The FSA urged financial institutions to strengthen their AML programs, including conducting effective "validity verification" (有効性検証) of their systems and controls, and be prepared for FATF inspections.
Combating Fraud: This particularly included emphasis on reducing phishing scams.
Account Management for Foreign Nationals: The FSA highlighted the need to strengthen controls to prevent the misuse of accounts held by foreign nationals after their period of stay has expired.

1.5 Cybersecurity

Cybersecurity remains a critical concern.

Strengthening Cybersecurity Posture: Financial institutions were encouraged to implement the findings of the "Cyber Security for Financial Firms".
Addressing and Improving Cybersecurity Deficiencies: There was mention about identifying the shortcomings of security and improving on them.

1.6 Supporting Local Economies and Regional Revitalization

The FSA emphasized the role of financial institutions in supporting local businesses, facilitating regional economic development, and addressing demographic challenges. This included:

Supporting Business Succession: Mentioned offering a variety of services including support and finance.
Promoting Revitalization of Regional Economics: Mentioned the importance of promoting local economies.

1.7 Promoting FinTech Innovation

The FSA promoted innovation and development of new technologies. They noted that they were prepared to accept risks to help foster innovation.

1.8 Responding to Natural Disasters

Natural disasters are part of life in Japan, and firms are expected to give flexibility to customers.

2. Industry-Specific Themes

While the above topics were common, the FSA also addressed themes specific to different sectors.

2.1 Securities Industry

Role in Capital Markets: The FSA emphasized the securities industry's vital role in facilitating capital formation, supporting growing businesses, and promoting household asset building. They expect securities firms to continue to develop plans and actions.
Enhancing Customer Service and Support for the Disabled: Financial firms were instructed to adhere to laws to help reduce discrimination and provide services for the disabled.

2.2 Regional Banks

Adapting to Changing Demographics: Regional banks face significant challenges from population decline and aging. The FSA urged them to develop sustainable business models and to explore new roles in supporting local communities.
Promoting M&A Support: They want firms to provide resources towards M&A and support.
Capital Requirements and Consolidation: The FSA noted the importance of consolidation and capital requirements, and mentioned that efforts should be made towards it.

2.3 Investment Trust Association

Focus on Customer-Centricity in Investment Products: Focus on firms acting in the best interest of clients when creating and selling these products.
Navigating Phishing: Emphasis on ensuring that all phishing scams are mitigated and responded to.

2.4 Credit Cooperatives

Focus on High Quality Financial Intermediation: Emphasis on sound underwriting.
Maintaining Financial Soundness and Risk Management: More focus and emphasis on improving soundness and mitigating risk.
Supporting Local Economies: Emphasis on helping with local economies.
Collaboration With Police in Countering Financial Crime: Emphasis on fraud and crime prevention.

2.5 Investment Management Industry

Improving the Investment Management Industry: FSA to ensure that financial firms compete and improve.
"Product Governance Implementation": Stressed the importance of improving product governance.
Focus on Investment in CT bonds: FSA wanted firms to buy more CT (Climate Transition) bonds.
Promote New High Standard of Conduct: FSA has a goal of making the standards among Japan financial firms the world standard.

3. Conclusion

The FSA's January 2025 dialogues reveal a clear set of priorities: to promote a shift toward investment-driven growth, ensure the stability and soundness of the financial system, protect consumers from financial crime and fraud, and support local economies.

The agency intends to take a proactive, engaged approach to supervision and regulation, working closely with industry stakeholders to achieve these objectives. The discussions also suggest that the FSA recognizes the unique challenges faced by different financial industry sectors and is prepared to tailor its guidance and expectations accordingly. The core objectives are stability, growth, and fairness to consumers.

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