Debate is in full swing over whether to relax the "firewall" that restricts the sharing of customer information between banks and brokerages within the same group.
A council of the Financial Services Agency is considering the issue and is expected to reach a conclusion next year. The industry is divided -- megabanks who want to increase their competitiveness are calling for the relaxation of regulations, while major independent securities firms are opposed.
When the financial system was reformed in 1993 in response to the internationalization of finance, firewall regulations were introduced when banks and securities companies were allowed to enter each other's markets.
To prevent banks, which are in a position to lend money to companies and other entities, from abusing their dominant position to forcefully operate their businesses, firewall regulations forbade the sharing of customer information between banks and securities companies even within the same group.
In contrast, the U.S. has already eliminated restrictions on information sharing, while in Europe, banks and securities companies are generally united as "universal banks." Japanese bank groups that have securities firms under their umbrella have been asking the government to relax firewall regulations in order to improve their global competitiveness.
The Japanese government has included consideration of easing the firewall regulations in its growth strategy drawn up in July, and discussions have begun at the FSA.
There are various ways for companies to raise funds, including borrowing and issuing bonds. Banks say that if they can share customer information, they can propose the best funding methods for their customers.
In a press conference on Oct. 15, Kanetsugu Mike, chairman of the Japanese Bankers Association and president of MUFG Bank, stressed that "Japan's regulation of the vertical division of financial functions is unique by international standards."
Information can be shared with the consent of the customer, but the banks have pointed out that the procedure is complicated.
However, major securities firms such as Nomura and Daiwa Securities are opposed to deregulating. The Japan Securities Dealers Association's Akihiko Ogino, a senior managing director at Daiwa Securities Group Inc., said at a council meeting on Oct. 12, "We should not forget who reforms are for and a customer-oriented perspective."
Ogino argued that some customers do not want to share information, so consent should be obtained as before.
Experts have also raised objections regarding individual customers.
Attorney Toshiro Ueyanagi told the council: "In the case of individuals, concerns about conflicts of interest prevail. Many people would feel uncomfortable if affiliated securities firms urged them to buy financial products at times when large sums of money were put in their bank accounts."
The key to the debate will be the impact on customers, including businesses and individuals. The Financial Services Agency plans to conduct a survey on customers' desires.
Masakazu Masujiima, a lawyer at Mori Hamada & Matsumoto who is an expert on financial regulations, said, "A mechanism needs to be created to prevent information from being used in a way that customers do not want."
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