Japan Plans Tougher Monitoring of Major Banks’ Overseas Operations

Japan's financial watchdog plans to strengthen monitoring of the overseas operations of major financial institutions, according to a draft of its annual financial administration policy obtained by Kyodo News.

Japan’s Financial Services Agency plans to strengthen monitoring of major financial institutions’ overseas operations and risk-management systems. [Photo: Mizuho Financial Group]

The Financial Services Agency is concerned that the international expansion of large financial groups can make it more difficult to obtain a comprehensive view of their operations and the risks they face, according to sources familiar with the matter.

The agency plans to examine how overseas operations could affect the overall management of financial groups during unforeseen circumstances, including global market turmoil similar to the 2008 financial crisis and periods of rapid economic deterioration.

The FSA also intends to examine whether banks' corporate-governance and risk-management systems are aligned with their business strategies.

The regulator is expected to coordinate with the Bank of Japan and overseas financial authorities as it strengthens supervision of internationally active Japanese financial institutions.

The proposed monitoring comes as Japanese banks continue expanding their overseas lending and investment activities, increasing the importance of assessing risks across their global operations.

The draft policy does not establish that overseas losses at Japanese banks are currently threatening the country's financial system.

Rather, it reflects the regulator's effort to identify potential risks before they become systemic.