The House of Representatives on Tuesday passed and enacted an investor protection bill that obliges brokers to inform investors of the risks involved when investing in specific financial products.

The new law is scheduled to take effect in April 2001, after financial authorities finish adjusting related ministerial ordinances for compliance, government sources said.

The law will oblige firms handling financial products — such as deposits, mutual funds, insurance policies, securities and futures — to explain at the time of sale or solicitation the possible losses that may be incurred.

Sellers will be obligated to compensate investors for any losses resulting from their failure to provide adequate information on the products.

The Finance Ministry regards the enactment as the first step toward making a comprehensive financial services law that will stipulate rules for every kind of financial transaction. The new law will replace conventional provisions extant in each sector.

The law for investor protection, however, drew criticism before it was enacted because it does not cover commodity futures.

In addition, the nonjudicial dispute settlement system must be widened to include seller negligence cases because investors will have to file lawsuits to receive compensation under the law.

The law comes as a growing number of investors find themselves strapped with losses incurred due to insufficient knowledge about the new financial products that have been introduced in the midst of Japan’s “Big Bang” of financial decontrol.

On the same day, the Lower House also approved revisions to the Securities and Exchange Law to allow stock exchanges to become joint-stock companies. It also approved revisions of the special-purpose companies law to further invigorate the real estate market by securitizing immovable assets.

The revised securities law, slated to take effect in December, makes it easier for stock exchanges to raise funds for their huge system investment and speeds up the decision-making process, enabling them to respond more effectively to the increasing competition from overseas bourses.

The Tokyo Stock Exchange, which plans to convert itself into a joint-stock company in April 2001, asked the Finance Ministry in November to revise the law.