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September 16, 2022

Japan to probe sale of structured bond by global investment banks

Japan’s Financial Services Agency (FSA) is set to launch an investigation into the sale of structured bonds by foreign investment banks in the country, Bloomberg reported citing unnamed sources.

As part of the investigation, the financial watchdog will try to find out if the key issuers of structured bonds provide adequate data to local financial companies before selling their products.

The regulator will also examine the fees charged by the banks, people privy to the development told the news agency.

An unnamed representative from FSA’s enforcement unit said that the Securities and Exchange Surveillance Commission could probe international securities companies operating in the country if required.

However, a representative of the FSA refused to give any update on the matter.

Recently, Japanese regulators have beefed up inspection on the marketing of structured bonds in the country after several complaints were lodged by buyers who suffered unforeseen losses.     

According to the Bloomberg report, various bigwigs in the country’s lending sector such as the banking arm of Sumitomo Mitsui Financial Group and Mizuho Financial Group, have restricted or stopped selling structured bonds.

Regulators are of the view that the structure of such products are complex and their pricing are not transparent.  

Hideyasu Ban, an analyst working at Jefferies in Tokyo, said that large banks in the US and Europe are the main firms that develop and sell structured bonds to Japanese financial companies.

Such banks include Barclays, Credit Suisse Group, BNP Paribas, Citigroup, Morgan Stanley and others.

FSA data revealed that in the fiscal year ended in March 2022, a total of JPY4.15tn ($28.9bn) structured bonds were sold in Japan, a little less than JPY4.47tn a year ago.

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