Japan regulators working on new rules to prevent leaks by company executives

Fri Dec 2, 2016 4:38am EST
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By Emi Emoto and Thomas Wilson

TOKYO (Reuters) - Japanese authorities are set to recommend new fair disclosure rules that aim to prevent company executives leaking insider information, part of Prime Minister Shinzo Abe's push to improve corporate governance and encourage foreign investment.

Marking the first time that Japan will adopt statutory rules on corporate disclosure, the move will likely broaden the scope of current requirements put in place by the Tokyo Stock Exchange and clarify what constitutes material and insider information.

While the extent of corporate leaks in Japan is hard to gauge, the government is keen to shake up a business culture that has often been criticized for prioritizing the interests of executives over shareholders.

The measures are also a response to recent scandals involving Deutsche Bank's (DBKGn.DE: Quote) and Credit Suisse Group AG's (CSGN.S: Quote) local securities units leaking corporate earnings information to clients. The Financial Services Agency censured the brokers but invited criticism when the companies behind the original leaks weren't named or punished.

Even so, in a nod to concerns of small firms worried about the burden of compliance, the FSA is expected to take a 'soft' approach and executives that break the rules will not face criminal penalties such as fines - unlike the United States.

That approach has won the backing of investors and companies alike.

"There's a concern about enforcement. Many small and mid-sized firms wouldn't be able to respond to those rules," said Shota Watanabe, fund manager at Rheos Capital Works which manages assets of around $1.8 billion, adding that overall he supported the rules.

"Rules that are too onerous could turn into a policy that kills young entrepreneurs and leaves only large firms standing."   Continued...

A Japanese national flag flies in front of the building of Japan's Financial Services Agency in Tokyo August 7, 2014.   REUTERS/Toru Hanai/File Photo