Financial Sector

July 2005

Japanese lack financial knowledge: OECD
A total of 71% of Japanese adults had no knowledge about investing in equities and bonds, according to an OECD report released last week. The report on financial education among citizens by the Organization for Economic Cooperation and Development also finds that 57% of Japanese had no knowledge of financial products in general and 29% had no knowledge about insurance, pensions and taxation, the report said. The OECD noted that a lack of knowledge about financial products among the public may cause serious economic and social problems as individuals take greater risks by selecting instruments themselves for defined-contribution pension plans and purchase products whose value may fall below par. (Nihon Keizai Shimbun, July 14, 2005)

FSA Proposes Moderate Corporate Governance Auditing Rules
Heeding the concerns of firms facing the prospect of having to shoulder a heavier burden, the proposed rules on corporate governance keeps required documentation down to a minimum. On Wednesday, the Financial Services Agency's (FSA) Business Accounting Council released proposed new rules that certified public accountants will use to audit corporate governance at listed companies. The rules include double checks, such as measures to prevent managers and accountants from running roughshod over financial statements. The manager will assume personal responsibility for ensuring that corporate governance is functioning properly and will attest to this fact in a report. Accountants, from an outsider's perspectove, are to see that there are no procedural problems. To allow accountants to perform these checks adequately, firms will be required to document various business procedures, including how a matter was handled at board meetings. These rules are being established to address a growing number of scandals that have severely affected investors, such as Seibu Railway Co.'s falsification of financial statements. While Japan will establish a corporate governance auditing system patterned after the U.S. model, the rules will be more relaxed due to cost concerns on the part of business. The FSA plans to gather feedback from firms, auditors and investors to solidify the rules by August. It will then create guidelines in the fall or later, with an eye on revising relevant legislation to bring the rules into effect as early as fiscal 2007. (The Nihon Keizai Shimbun, July 14, 2005)

Banks Launch Info Disclosure Panels To Boost Corp Governance
Major banks have set up divisions responsible for quickly disclosing reliable financial/management information in a bid to shore up their corporate governance systems. The trend indicates that banks are trying to regain the confidence of investors after a recent series of cases involving corporate misconduct. Sumitomo Mitsui Financial Group Inc. and Resona Holdings Inc. have both created information disclosure committees, following the establishment of similar panels by Mizuho Financial Group Inc. and Mitsubishi Tokyo Financial Group Inc. The committees are tasked with verifying the methods by which disclosure is made and the correctness of information about shareholder ratios and other matters. Sumitomo Mitsui's committee, which comprises a number of directors in charge of finance, personnel affairs, public relations, investor relations and others, is slated to meet at least six times a year. (The Nihon Keizai Shimbun, July 4, 2005)