Japan’s securities regulators, seeking to maintain investor confidence in the country’s markets amid the Livedoor accounting scandal, agreed to expand a relationship with the U.S. Securities and Exchange Commission so that the countries can increase their ability to exchange information and collaborate on enforcement matters.
Gomi
SEC Chairman Christopher Cox and Hirofumi Gomi, commissioner of Japan’s Financial Services Agency, exchanged letters stating that the agencies will meet at least once a year to discuss ways to promote investor protections, foster market integrity and bolster securities activities across the countries’ borders, according to statements dated Jan. 30 on both groups’ Web sites.
Corporate governance, accounting and auditing standards are among the issues on this year’s agenda, Yukihiro Mori of the JFSA told Compliance Week via e-mail.
According to JFSA spokesman Kenji Goto, Japan aims to learn from the U.S.’s experience with such accounting scandals as Enron Corp. and WorldCom Inc. as it investigates Livedoor. Livedoor executives have been accused of spreading false financial information about the company. The allegations caused Livedoor President Takafumi Horie to step down, and prompted a sell-off of the Internet firm’s shares, forcing the Tokyo stock market to close early for the first time in its history.
“Problems in the securities industry are mounting,” Goto told Compliance Week from his office in Tokyo. As a result, Goto says the U.S.’s experience with Enron and WorldCom—and the subsequent creation of the Sarbanes-Oxley Act of 2002—are “very enlightening” to Japanese regulators. “It’s very important to achieve a high level of communication with these authorities,” he adds.
The growing relationship between the SEC and the JFSA will help solidify U.S. efforts to combat cross-border fraud through “timely cooperation and assistance,” Ethiopis Tafara, director of the SEC’s Office of International Affairs, said in the statement. John Heine, a spokesman for the agency in Washington, declined further comment.
Combating Transnational Fraud
According to Goto, the relationship between the JFSA and the SEC was initiated by Japan’s former Minister of State for Financial Services Tatsuya Ito and William Donaldson, the former chairman of the Commission. In May, 2002, the JFSA signed a statement of intent to cooperate, consult and exchange such information as market volume and prices, as well as details on certain transactions as requested by each authority, with the SEC and the U.S. Commodity Futures Trading Commissions, according to JFSA’s Web site.
FRAMEWORK
Below is a "provisional translation" of the framework of the "high-level dialogue" between Japan
s Financial Services Agency and the U.S. Securities and Exchange Commission:
On January 27, Financial Services Agency ("FSA") of Japan and the Securities and Exchange Commission of the United States ("SEC") agreed on the framework of the regular high-level bilateral dialogues ("Dialogue"), namely, terms of reference.
(Note)
The initial agreement to have the Dialogue was reached in May 2005, with its first meeting held in Tokyo in June. At the first Dialogue, they exchanged views on commonly interested issues, such as Investment Service Law, enhancement of corporate governance, convergence of accounting standards, etc.
The agreed framework set forth the objectives, timing and venue, participants and agenda of the Dialogue. Accordingly, FSA and SEC will hold regular meetings between their senior staff and high-level officials, to exchange views on issues of common interest pertaining to the securities markets in both countries and promote cooperation in addressing issues of common interest so identified.
The specific issues to be addressed in the Dialogue will be determined through consultation between the FSA and the SEC: the following issues for discussion have already been identified as the agenda items for 2006: accounting and auditing standards, corporate governance and internal controls, approaches to securities companies, self-regulated entities, etc., cross-border cooperation and information sharing on enforcement matters and approaches to facilitating technological advances in securities markets.
Source
Terms Of Reference Of Dialogue Between Japan's FSA and The SEC (Jan. 30, 2006)
The formation of the relationship was in recognition of “a growing need to cooperate in combating transnational fraud” and collaborate on illegal cross-border securities activities, the statement said. JFSA said it has similar arrangements with China and Singapore.
Crow
“The world has gotten very small,” said Charles Crow, a partner at the law firm Crow & Associates in Princeton, N.J., which counsels clients in corporate law, commodities and securities. “To the extent we can increase cooperation internationally there is a huge benefit because it will have a net effect of giving investor confidence much better footing and, as such, we’ll have a more efficient market all around.”
In the wake of recent scandals, countries have a heightened sense of concern about regulations, the avoidance of fraud and the desire to have a level playing field for investors, Crow said. Companies that conduct business in different countries face the challenge of meeting varying standards for such functions as accounting.
When “accounting standards are different, reporting standards are different and you will have filings with different numbers in them,” Crow said. “If that information doesn’t translate, that’s a problem because then you have to take apart the numbers before you understand what you have.”
Future meetings between the agencies are expected to be attended by the SEC’s chairman or commissioner and the commissioners, directors of bureaus or deputy commissioners for the FSA, Mori wrote via e-mail. According to the SEC, the “enhanced” dialogue will supplement the U.S.-Japan Financial Sector Working Group—led by JFSA and the U.S. Treasury Department—which addresses financial sector issues more broadly. The SEC and JFSA will continue to participate in the International Organization of Securities Commissions, the statement said.
Related resources and international compliance coverage can be found in the box above, right.
No comments yet