CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Between 54-87% of retail CFD accounts lose money. Based on 69 brokers who display this data. *Availability subject to regulation.
Formed in 2000, the Financial Services Agency (FSA 金融庁 Kin’yū-chō) is the regulatory body responsible for maintaining the stability of the financial system in Japan. The sectors it has oversight of include securities, banking and insurance. The purview of the Agency includes financial institutions such as banks, financial instruments, business operators, insurance companies, trust companies, financial market infrastructures and foreign audit firms. The Agency is answerable to the Ministry of Financial Services and oversees the Certified Public Accountants & Auditing Oversight Board, and the Securities & Exchange Surveillance Commission (SESC).
Chaired by the Minister of State, the Financial Reconstruction Commission (FRC) was established in December 1998. The Commission had oversight of the Financial Supervisory Agency, at the time, which was an administrative branch responsible for the inspection and supervision of private sector financial institutions. They were also responsible for the surveillance of securities transactions. When the FSA was reorganised in 2000 to form the Financial Services Agency, additional responsibilities were added including planning of the financial system and policymaking.
In January 2001, the FRC merged into the FSA incorporating the failed financial institutions crisis response function into their responsibilities and fully establishing the independence of the regulatory authority from the Japanese Ministry of Finance.
It was only following these reorganisations that the banking crisis that had started in the early 1990s began to make a recovery. Though there had been some signs of recovery in the mid-90s, a further recession ensued following the impact of the Asian financial crisis on the economy. This led to an acute banking crisis in 1997-1998, which required more decisive government action and prompted the formation of the FRC. During the period, two major securities houses fell and one of the city banks subsequently collapsed after being unable to gain adequate access to capital from the call market.
One of the first tasks required by the FSA following their formation in 2001, was to perform a targeted inspection of bank loans. This focused on large bank exposures to high-risk borrowers and resulted in many of the loans being reclassified as bad loans. Based on the results of the inquiry, a suitable recovery program was devised and implemented from 2002. These measures, along with intervention from the Bank of Japan, finally began to restore the health of the banking system.
The FSA has three major policy objectives as a financial regulator:
These objectives are shared by multiple regulating agencies around the world and they continue to serve as a guide for policymakers. However, the financial environment around the world has rapidly changed with technology and globalisation. The FSA has a responsibility to keep adapting their policies in alignment with these broad objectives to keep pace with the changing landscape.
The following are the key functions that the FSA perform as the top financial regulator of the country:
The FSA is currently is tasked with making changes to the financial system through planning and policy-making; supervising and monitoring the activities of market participants and financial institutions such as banks, insurance companies and exchanges; establishing corporate finance standards, such as accounting standards; establishing the markets trading rules; and working with international organisations to establish consistent financial administrative standards.
A yearly policy outlook details the FSA’s guidelines for supervision and inspection of the financial firms it oversees, as well as reviewing proposed legislative amendments for the year.
One of the major lessons learned from the banking crisis was the speed at which action should have been taken. The Japanese government were accused of being slow to respond, even after the asset prices bubble burst, although there were several reasons for the delay. However, this resulted in the severe situation in 97-98, and it was only during this period that firm action was finally taken to replace the weak regulatory framework with a more robust system. With the independent regulatory body that has now been granted full supervisory and policy-making responsibilities in the industry, the FSA are well placed to take prompt action should similar circumstances arise again.
Indeed, there have been recent calls for the regulator to revisit the supervision of the banking sector as falling profits, risky business models, and capital adequacy concerns have resurfaced. The FSA’s response has been to step in and monitor supervision and governance arrangements within the banks that have been identified as being at risk.
In addition to financial stability, another main focus of the FSA is consumer protection and the promotion of confidence in the financial markets. These factors are all necessary to contribute towards a healthy financial system and ultimately a healthy economy within Japan.
The FSA reports to the Minister of Financial Services, who in turn answers to the Prime Minister. The Agency has its own commissioner who presides over the three main bodies within the organisation, which are as follows:
Planning and Coordination Bureau: The function of this body is divided into two prime areas: coordinating affairs pertaining to the entire Agency; and planning and policymaking related to financial statutes, systems and regulations.
Inspection Bureau: Inspection Bureau monitors and invigilates financial institutions to ensure their compliance with banking acts and other related laws.
Supervisory Bureau: Supervises financial institutions and looks to instil in them the principles of responsibility and market discipline.
Apart from these, the FSA also oversees the functioning of the following two organisations who have their own commissioners and who are answerable to the FSA.
Securities and Exchange Surveillance Commission (SESC): This is the market watchdog, which ensures fair play and integrity of market participants and protects the interest of investors. It also investigates any cases of misconduct in the market and verifies mandatory disclosures.
Certified Public Accountants and Auditing Oversight Board: This body is responsible for ensuring reliable auditing of financial results and other financial documents. It strives to ensure the highest auditing standards and ethics in the country.
With consumer protection and market confidence being such a high priority for the FSA, their supervision and intervention in the Forex / CFD trading industry is an essential element of their duties. In fact, they made moves to protect traders from the risks associated with highly leveraged transactions in their revision of the Financial Instruments and Exchange Act in 2009, which was way in advance of many of the other financial regulators around the world, some of which are still in the process of putting measures in place in this regard. The changes implemented in 2010 restricted retail traders to a leverage on Forex transactions of 50:1. In 2011, this was reduced further to 25:1.
Regulating agencies around the world have framed rules to limit leverage and margin in light of such issues as the Swiss national bank pegging the Swiss Franc against the Euro in 2015. The subsequent losses were huge and were due to high leverage offered by brokers. However, Japanese brokers regulated by the FSA were able to weather the storm much better. Thanks to the foresight of the Agency, which had already put limits on the leverage an FSA regulated broker could offer to a client. The FSA also introduced rules to prevent offshore brokerage firms from offering financial services to Japanese customers. These measures have significantly reduced the risk taken by customers while engaging in Forex trades. However, it has been a difficult task for the agency to police the traders who are constantly looking for offshore brokers for the higher leverages they offer. The FSA is currently coordinating and seeking help from international regulators to limit this problem. They are also trying to persuade offshore brokers to open offices in Japan to serve its Japanese clientele.
The FSA are trying hard to bring about structural reform in the Forex/CFD trading environment in order to protect the interests of customers and limit the risks in the system. It has been coordinating with foreign regulators to ensure that international brokerage firms oblige to FSA norms while dealing with domestic customers. All these would ensure that trades done through an FSA regulated broker are secure, safe, and the interests of the customer are safeguarded. As the market watchdog, the FSA take all measures to ensure that brokerage firms meet the highest standard of business practices and comply with disclosure rules.
The FSA also require brokers to be responsible for putting in place their own high operational standards and mechanisms that enable them to adhere to the stringent regulations. This means that when using an FSA regulated broker, a trader can be reassured that protection of their deposits and fair execution are primary considerations.
AvaTrade has an FSA regulated subsidiary in Japan, AvaTrade Japan KK, and offer a dedicated Japanese language website. The broker is subject to the high regulatory standards imposed by the Japanese regulator, and being a worldwide broker, is also subject to the regulatory regimes affecting other jurisdictions, including Europe and Australia.
The FSA provides an efficient framework for financial regulation, which instils customer confidence in the financial system. These regulations have evolved through changing needs over time, but they continue to hold customer interest and best practices as their fundamental pillars. The Agency ensures a fair, transparent and convenient environment for financial institutions to operate so that customers can fearlessly transact in the system.