The Financial Services Agency proposed legislation Wednesday that would expand the scope of financial products subject to sales restrictions because of their investment risk.
Under the plan, companies selling such instruments will be required to fully explain the risk of their products, including securities, foreign-currency deposits and variable annuity insurance, and to devise sales methods that best suit prospective buyers, depending on their net worth and knowledge of investment issues.
Under the planned legislation, sellers of such products would face a penalty if found in violation the rules.
The FSA's proposal was made at a meeting of a government panel reporting directly to the prime minister that is working on the new legislation.
The panel's earlier plan called for extending the restrictions to cover regular bank deposits and savings-type insurance policies, but the idea was scrapped in the face of stiff opposition from the financial industry, panel sources said.
The planned rules will instead be limited to instruments that are vulnerable to foreign-exchange and other investment risks, including foreign currency insurance policies, investment trusts and yen-denominated derivatives, for which investors will have to pay fees to cancel transactions.
Companies selling investment funds to individuals will be required to disclose details about the workings of such products to authorities. A ban on unsolicited sales will initially apply only to foreign-exchange margin trades.
In its recommendations to be drawn up by the end of the month, the panel may call for regulating sales of instruments such as commodity futures that are administered by government agencies other than the FSA, panel sources said.