8 April 1999
Financial Supervisory Agency

As part of its efforts under the "Comprehensive Plan for Financial Revitalization" (2nd Report; July 2), the Financial Supervisory Agency established the Working Group on Financial Inspection Manuals in its Inspection Department. The Working Group met a total of twenty-four times from August last year. On December 22 of last year, it published an "Interim Report" and invited public comments on it. These comments were reviewed and considered, and where possible incorporated into the "Final Report" of the Working Group on Financial Inspection Manuals, which was published today.

The basic concept underlying the "Final Report" is that financial institutions should be run on the principle of self-responsibility, with financial inspection serving as a means of supplementing this. Based on this concept, the report advocates: 1) a change from regulator-led inspections to self-management-style inspections (focus on process examination to verify the appropriateness of internal control and external auditing), and 2) a change in emphasis from assessment of asset quality to inspection of risk management. The Report also considers, from the perspective of global standards, trends in financial inspection in other countries and discussions in the Basle Committee on Banking Supervision. (See Attachment 1.)

Attachment 2 lists the major revisions made from the "Interim Report."

The Financial Supervisory Agency plans to issue an internal circular to inspectors based on the "Final Report."

This circular will apply for all inspections of deposit-taking institutions conducted on and after July 1, 1999. The sections concerned with asset assessment and write-off/reserve provisions (and related settlement issues) will apply to inspections of final accounts closed after July 1.

The full text of the Final Report is available in Japanese.