Japanese regulators seek subprime answers

The Securities Exchange and Surveillance Commission will scrutinize investorsÆ disclosures at the end of the fiscal year.
The Securities Exchange and Surveillance Commission (SESC), the inspections and oversight arm of JapanÆs Financial Services Agency, is looking into potential issues involving Japanese investorsÆ exposure to subprime mortgages in the United States.

Kiyotaka Sasaki, director of the strategy and policy coordination division at the SESC, says the regulator is examining aspects of Japanese investorsÆ exposure to structured products such as collateralised debt obligations (CDOs) and other asset-backed securities with subprime exposures.

The SESC will scrutinize disclosures by financial institutions and other investors that emerge by the end of the fiscal year (end March). ôWe want to see whether they properly disclose any losses related to these exposures,ö Sasaki says.

Secondly, the SESC is looking into how these structured products were marketed to Japanese investors. Sasaki notes CDOs were mainly originated by investment banks in the US and Europe. Authorities want to ensure these have been marketed to Japanese investors in a suitable and appropriate manner.

Thirdly, the subprime-led market turmoil has led to losses among retail and institutional investors in the foreign exchange markets. In turn, a number of smaller brokerages have closed. The SESC is now conducting on-site inspection of some forex brokers, not only to look at their marketing activities, but to check for solvency issues, in the hope of protecting investors from further losses.

SasakiÆs remarks to AsianInvestor were wide-ranging, covering issues such as: the new Financial Instruments and Exchange Law; changing the nature of the SESCÆs inspections; the regulatorÆs outreach programme to private-sector participants; introducing proper risk and compliance controls; improving the environment for hedge funds; and supporting the distribution of investment products. For the full interview, see the February 2008 edition of AsianInvestor magazine.
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