April 5, 2014 5:15 am JST

Japan to tighten rules on selling high-risk investments

TOKYO -- Japan's Financial Services Agency will limit the sale of high-risk investment products targeted at professionals, in light of a growing number of cases in which elderly and less-savvy investors have fallen victim to predatory marketing.

     Currently, if one institutional investor, such as a bank or brokerage, buys into one of these products, it may be marketed and sold to up to 49 retail investors, without restrictions.

     The new rules will restrict sales to individuals with some investment experience and financial assets of at least 300 million yen ($2.86 million). The soliciting company must either be listed or unlisted with 500 million yen or more in capital.

     Some worry that this will prevent people involved in startups, which use such products to raise money, from investing in them. The agency is considering waiving the asset requirement for individuals in such cases.

     The number of questionable business practices involving high-risk investments soared tenfold in three years to 1,518 in fiscal 2012, according to the National Consumer Affairs Center of Japan. The figure was likely about the same last fiscal year.

     Many cases involved false information or aggressive tactics, and 90% of the victims were 60 or older. The average amount paid was roughly 6 million yen.

     Because regulations on these investments are looser than those on normal investment trusts, complex products are believed to have been sold to elderly buyers without sufficient explanation.

     The Securities and Exchange Surveillance Commission issued a warning last year to Tokyo-based Limit Investage, which raised and misappropriated funds from hundreds of investors, going well beyond the legal limits.

     A revised draft of relevant government ordinances will be released by this summer. After a comment period, they will go into effect within the year.