The Democratic Party of Japan will form a working team under its financial committee as soon as today to discuss changes to rules governing investment managers for pension money, Tsutomu Okubo, a lawmaker who leads the panel, said in an interview in Tokyo yesterday. Okubo, 50, expects a bill to amend the Financial Instruments and Exchange Law will win Cabinet approval as early as mid-March and then be sent to the Diet.

Japan’s financial regulator yesterday began its biggest investigation of asset managers following the Feb. 24 suspension of AIJ, which has failed to account for the more than $2 billion it oversaw for clients, including pension funds. The case has raised concern over the safety of retirement assets in Japan, where more than a fifth of the 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.”

AIJ had 122 contracts with domestic corporate pensions and one with a foreign investor as of March 2011, according to filings with Japan Securities Investment Advisers Association. The Tokyo-based firm managed 185.3 billion yen ($2.3 billion) of clients’ assets as of that date, labor ministry figures show.

Renho, Nagatsuma

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.

Considering Revamp

Financial Services Minister Shozaburo Jimi pledged this 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.

The regulator plans to compile a shortlist by late March of companies that may need extra investigation, a senior FSA official said at a press briefing on condition of anonymity because of the agency’s policy. The FSA would ask those firms to disclose information including their clients’ assets under management, the rate of returns and the status of derivatives trading, according to the statement.

AIJ hasn’t been accused of wrongdoing following its suspension. Any action against it depends on the findings by the Securities and Exchange Surveillance Commission, the financial watchdog under the agency, Jimi said on Feb. 28.

“We have to stop this quickly,” said Takeshi Miyazaki, a DPJ lawmaker in the lower house of parliament. “We’ve got to investigate and come up with steps to fix this situation and to strengthen checks.”

To contact the reporters on this story: Shigeru Sato in Tokyo at ssato10@bloomberg.net; Shingo Kawamoto in Tokyo at skawamoto2@bloomberg.net.

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

http://www.bloomberg.com/news/2012-02-29/dpj-panel-seeks-outside-auditors-for-asset-managers-after-aij-okubo-says.html

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