Financial Crime World

BANKS FACE SCRUTINY OVER EXECUTIVE REMUNERATION

New Guidelines Issued by Financial Services Agency (FSA)

Tokyo, Japan - The Financial Services Agency (FSA) has issued new guidelines to ensure that banks’ remuneration systems do not encourage excessive risk-taking by directors, executive officers, and employees.

Key Requirements

  • Remuneration committees will be responsible for supervising their institution’s remuneration system to ensure it is properly established and managed.
  • Committees must check whether the amount of remuneration would have a material effect on the bank’s core capital and communicate with the risk monitoring department.
  • The remuneration committee should ensure that the system does not promote excessive short-termism or become overly performance-based.
  • Staff in the risk monitoring department and compliance department should have their salaries determined independently from other business departments and based on the importance of their roles.

Monitoring and Enforcement

  • The FSA will closely monitor banks’ remuneration systems through regular off-site monitoring and inspection.
  • If a serious problem is identified, the agency may require the bank to submit a report under Article 24, Paragraph 1 of the Banking Act or take administrative action, such as issuing an order for business improvement under Article 26.

AML/CFT Regulations

New Guidelines Issued by FSA

The FSA has also issued guidelines on anti-money laundering and counter-terrorism financing (AML/CFT) requirements. Under the Act on Prevention of Transfer of Criminal Proceeds, banks are required to:

  • Implement customer due diligence
  • Record-keeping and reporting of suspicious transactions
  • Verify customers’ identification data, the purpose and nature of transactions, and occupation or business type
  • Prepare and preserve verification records for seven years from the date of the transaction

Suspicious Transaction Reporting

  • Banks must file suspicious transaction reports with the competent administrative authority in cases where assets received through a transaction are suspected to be criminal proceeds or where the customer is suspected to be engaged in money laundering.

Depositor Protection

Japan’s Deposit Insurance System

The Deposit Insurance Corporation (DIC) administers Japan’s deposit insurance system, which protects depositors by providing financial assistance to a successor financial institution or directly paying insurance proceeds to depositors of a failed financial institution. The DIC provides coverage up to the statutory limit for insured deposits with licensed banks and other deposit-taking financial institutions.

Exceptions

  • Foreign branches of licensed financial institutions
  • Japanese branches of foreign banks
  • Agricultural/fishery co-operatives and related financial institutions are not covered by the system.

Supervision

The FSA supervises DIC’s operation of the system, which is designed to protect depositors in the event of a bank failure.