The Federal Financial Supervisory Authority (BaFin) and the Japanese Financial Services Agency (FSA) have agreed to strengthen their cooperation. This was concluded in an Exchange of Letters (EoL) between BaFin President Felix Hufeld and FSA Commissioner Toshihide Endo in Tokyo on 7 June 2019.

The signatures to this agreement, in addition to the intensive preparations involved, clearly underline the importance of close collaboration with our colleagues in Japan, said Hufeld. “More and more of the major global challenges can only be resolved through close collaboration with our international partner authorities.”

The EoL provides for the intensive exchange of information between BaFin and the FSA regarding current issues in financial supervision, possible measures and planned on-site visits to branches of cross-border institutions domiciled in the respective other country, among other things. Cooperation between the two authorities also extends to crisis management and the exchange of information regarding suspicious financial transactions, with considerable emphasis placed on the protection of confidential information. Like Germany, Japan also follows the model of integrated financial supervision, meaning the financial market is supervised by a single body.

“The EoL provides a solid basis for our supervisory dealings,” explained Peter Kruschel, Head of BaFin’s Division for Technical Cooperation and Bilateral Affairs, regarding the expected improvements. The preparations and negotiations were led by Dr Verena Meckel, BaFin’s expert in matters relating to Japan, who, upon her return from Tokyo, reported that communicating in a restrained manner and avoiding open conflicts is part of Japanese culture, which presents a particular challenge in the development of common rules.

Cooperation since the establishment of the FSA

German financial supervisors have been in dialogue with the FSA since it was founded in 2000. This dialogue covers topics such as the supervision of branches of cross-border institutions and legislative proposals, as well as communication with regard to particular challenges. One example of this is the period of low interest rates: Japanese banks and insurers had already experienced this before a similar picture emerged in Germany.

The EoL was prepared over the course of two years and signed by Hufeld and Endo following a symposium on the challenges for the financial sector posed by an aging society, “Aging and Financial Inclusion”, which was held as part of Japan’s G20 Presidency. Japan has been dealing with the effects of an aging demographic for longer than Germany, and the issue is the subject of intensive discussion across Japanese society. Hufeld took part in the symposium upon the invitation of Endo.

Aging demographic is putting pressure on Japan

The symposium considered issues such as the role to be played by the financial industry in ensuring financial inclusion („Call to Action for the Upcoming Super-Aging World – How can the financial services industry help ensure financial inclusion?”). On this topic, Hufeld explained that older people too need access to financial services and highlighted the need for financial products that are suited to this demographic.