Japan’s Financial Services Agency said it will hire 32 officials to help tighten oversight of illegal trading at securities firms and other regulations as it boosts its headcount and budget for next year.

The regulator plans to increase its net headcount to 1,548 people in 2012, the most in at least in five years, as its budget grows by 4.1 percent to 23.1 billion yen ($296 million), the agency said in an e-mailed statement.

The FSA penalized at least 35 financial institutions this year, including Citigroup Inc. (C) and UBS AG (UBSN), for breaching Japanese securities rules, according to its website. The additional staff will help the FSA improve oversight and participate in global regulatory changes as the debt crisis in Europe widens, the agency said.

The regulator told Citibank Japan Ltd. earlier this month to stop soliciting sales of products including mutual funds and foreign-exchange deposits to retail customers for a month, after it failed to fully explain their risks. Darren Buckley, who heads the Japan unit, will step down in January.

Citigroup’s and UBS’s local securities units were also ordered to suspend some derivatives transactions after staff of the firms attempted to influence interbank lending rates, according to the regulator.

Japan’s FSA currently employs 1,537 inspectors, analysts and accounting and legal staff. The 32 new officials will join the regulator as 21 leave the agency, it said.

To contact the reporter on this story: Takahiko Hyuga in Tokyo at thyuga@bloomberg.net

To contact the editors responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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