AIJ fiasco begs need for asset-manager oversight: DPJ

Bloomberg

The ruling Democratic Party of Japan is seeking to amend laws to require external audits for privately owned asset management firms in a bid to avoid a recurrence of the AIJ Investment Advisors Co. case.

The DPJ has launched a working team under its financial committee to discuss changes to rules governing investment managers for pension money, Tsutomu Okubo, a lawmaker who leads the panel, said in a recent interview. Okubo, 50, expects a bill to amend the Financial Instruments and Exchange Law will win Cabinet approval as early as this month and then be sent to the Diet.

Japan’s financial regulator is investigating asset managers following the Feb. 24 suspension of AIJ, which has failed to account for the more than ¥210 billion ($2.6 billion) it oversaw for clients, including pension funds. The case has raised concern over the safety of retirement assets at a time when more than a fifth of the nation’s population is over 65.

“The social impact from the AIJ issue is huge, and we want to avoid a second or third case like this,” said Okubo, a DPJ legislator and a former Morgan Stanley executive. “We need a swift remedy to prevent a repeat of this.”

The subcommittee on pension funds and AIJ issues will be made up of 10 politicians from Prime Minister Yoshihiko Noda’s DPJ, including former Government Revitalization Minister Renho and ex-labor minister Akira Nagatsuma, Okubo said.

Under the Financial Instruments and Exchange Law, closely held asset management firms don’t need to hire external auditors to review their business reports.

The panel will discuss whether the Financial Services Agency should hire inspectors with backgrounds in the hedge fund industry, Okubo said. It will also consider whether trust banks and life insurers should expand their oversight of funds as custodians, he said.

A total of 265 asset managers nationwide will be required to submit status reports to the FSA by March 14, the agency said in a statement. The reports must contain details of a firm’s operations, contracts and their amounts, and any past complaints from customers.

Financial services minister Shozaburo Jimi pledged last week to consider revamping the inspection and supervision of pension asset managers, saying his agency won’t rule out any step to prevent cases like AIJ’s.