January 05, 2018

The Financial Services Agency of Japan (JFSA) has issued the English translation of its draft report on the supervisory approaches and calls for public comments by February 14, 2018. The report aims to present how JFSA intends to transform its supervisory approaches to enable both the JFSA and the industry to continuously benefit from the interaction between them and reform and innovate themselves. This report describes the approaches commonly applicable to supervision of financial institutions subject to the JFSA regulations.

The existing supervisory approaches rely on the elaborate system of checklists. Rigorous loan-by-loan review conducted by JFSA contributed to the resolution of the non-performing loan problems, but might not be effective in preventing the next crisis. Compliance checks repeated year after year by JFSA have made firms improve their internal control, but may also have worked to stifle their initiative to innovate.

A panel of experts commissioned by JFSA, the Advisory Group on Supervisory Approaches, submitted a report “Transforming the JFSA's supervisory approaches” to JFSA in March 2017. It recommended JFSA to recast its existing supervisory approaches, which focus on backward-looking, element-by-element check on the compliance with formal requirements, into those based on substantive, forward-looking, and holistic analysis and judgment. The panel also recommended JFSA to review whether its approaches are consistent with the ultimate goal of financial regulation. This report is the response of JFSA to the panel’s report and describes how it intends to implement the panel’s recommendations.

 

Comment Due Date: February 14, 2018

Keywords: Asia Pacific, Japan, Banking, Securities, Insurance, Supervisory Approaches, JFSA

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