The Finance Ministry on Thursday presented the ruling Liberal Democratic Party with a draft bill designed to protect investors in financial products, LDP officials said.
The bill, slated to be approved March 24 by the Cabinet before being submitted to the Diet, obliges finance companies to provide information on their products when selling them in order to help investors understand the risks involved.
The bill will also require finance companies to compensate investors who suffer losses as a result of the seller's negligence in supplying product information.
The move comes at a time when a growing number of investors are running into difficulties after purchasing financial products without being sufficiently informed.
The bill is intended to counter problems arising from progress in the government's "Big Bang" deregulation of the financial market, which is aimed at putting Japan's financial markets on a par with London, New York and other global financial centers.
The government is hoping the legislation will come into effect in April next year.
The bill calls on finance companies to disclose information on products such as deposits, investment trusts, insurance, securities and futures.
The information will center on the risks involved, such as changes in expected returns due to fluctuations in currency rates or in the stock market, as well as losses to be incurred in the event of the cancellation of a contract.