• On July 2022, 7, the Financial Services Agency, in response to a recommendation from the Securities and Exchange Surveillance Commission, issued a business suspension order (15 months) and a business improvement order to Escon Asset Management Co., Ltd. (hereinafter referred to as the "Company"). announced that administrative sanctions had been taken.

• Our company has committed the following inappropriate acts regarding the appraisal of real estate acquired from our parent company in the management of assets entrusted to us by Escon Japan REIT Investment Corporation. It was recognized that this was a violation of the "duty of loyalty" stipulated in Article 42, Paragraph 1.

① Inappropriate efforts to undermine the independence of real estate appraisers

　If the interim report or estimated value of the appraisal value presented by the real estate appraiser is less than the parent company's desired sales price.

　For properties that have been sold, the appraisal value exceeds the desired sale price after communicating the parent company's desired sale price.

　The company made inappropriate efforts to encourage real estate appraisers to do so.

② Inappropriate real estate appraiser selection process

　When requesting a real estate appraisal for a property acquired from the parent company, the appraisal value is higher than the parent company's desired sales price.

　With the intention of obtaining a

　Negotiate with the real estate appraiser who submitted the amount so that the appraisal fee will be the lowest. Furthermore, the appraisal business

　The reason is that the appraiser's appraisal fee is the lowest, while concealing the fact that the estimate by the appraiser was the highest.

　The appraiser was selected as the client.

[source]

・“Recommendation based on inspection results for ES-CON Asset Management Co., Ltd.”

https://www.fsa.go.jp/sesc/news/c_2022/2022/20220617-4.html　(From the Securities and Exchange Surveillance Commission website)

・“About administrative disposition against ES-CON Asset Management Co., Ltd.”

https://www.fsa.go.jp/news/r4/shouken/20220715.html　(From the Financial Services Agency website)

1. Investment corporations and investment management companies　　

• Based on the "Act on Investment Trusts and Investment Corporations" (hereinafter referred to as the "Investment Trust Law"), investment corporations mainly manage assets based on specified assets (such as real estate and real estate lease rights, specified in Article 2, Paragraph 1, etc. of the Investment Trust Law). An association established for the purpose of investing in and managing assets (hereinafter referred to as "Assets"), and usually operates an investment management business (Article 2, Paragraph 8, Item 12 of the FIEA) based on the Financial Instruments and Exchange Act (hereinafter referred to as the "FIEA"). A) An asset management entrustment agreement will be concluded with a registered management company (hereinafter referred to as the "Management Company"), and the management of assets will be entrusted to them. The entrusted management company will manage the assets of the investment corporation in accordance with the regulations of the Investment Trusts Act and the Financial Instruments and Exchange Act.

2. Appraisal evaluation for investment corporations and management companies　　

• Under the Investment Trusts Act, when land, buildings, etc. (hereinafter referred to as "real estate, etc.") are acquired or transferred as assets for which management instructions are given to a management company, an appraisal by a real estate appraiser who is not an interested party, etc. is required. It is mandatory to carry out an evaluation. Furthermore, based on the Investment Trusts Act, investment corporations are required to prepare asset management reports for each business period, and these reports include ``the price of each property as of the end of the current period'' as ``matters related to the current status of the investment corporation.'' (Articles 71 to 73 of the Regulations on Accounting for Investment Corporations). In reality, the articles of investment corporation stipulate that the price of real estate, etc. stated in the asset management report is "according to the appraisal value by a disinterested real estate appraiser," and appraisals, etc. are conducted every business period. There are many cases where

In practice, appraisal results and appraisal reports (copies) of real estate, etc. that are investment targets are often disclosed to investors (beneficiaries), and appraisals are based on investors' (beneficiaries) investment decisions. Its importance is increasing as information that affects people's lives. Furthermore, as the number of real estate securitization products increases, the situations in which appraisals are required are becoming more complex and diverse, and the knowledge, experience, and responsibilities required of real estate appraisers are also becoming more sophisticated.

3． Management company’s duty of loyalty　　

• Based on Article 42, Paragraph 1 of the FIEA, management companies are required to have a ``duty of loyalty'' to faithfully conduct investment management business for rights holders. In particular, management companies whose main investment target is real estate, etc. (including financial products whose underlying assets are real estate) are based on obtaining appraisals and appraised values ​​at the time of acquisition and sale of real estate, etc., as a system to prevent conflict of interest transactions. It is necessary to determine appropriate and fair transaction prices, etc., and in the registration procedure for investment management business, the decision-making process, division of duties, outsourcing, profit, etc. are required to realize appropriate and fair due diligence of real estate. Companies are required to decide on conflict management systems, include them in internal regulations, and implement them.

Management companies, which are required to have a duty of loyalty to rights holders, must properly manage conflict of interest transactions, obtain appropriate real estate appraisals from a neutral and objective standpoint, and ensure that real estate transactions and prices are appropriate and fair. Maintaining sexuality has become a natural requirement.

1. Impact of this administrative action　　

• The actions that were brought into question this time were all "inappropriate acts that prioritized having the investment corporation acquire real estate owned by the parent company at a price higher than the parent company's desired sale price." This is not limited to investment corporation asset management companies, but real estate-related specified investment management companies and real estate specified joint ventures also have similar structures and issues.

　In schemes involving real estate, etc., large companies with good asset bases are often involved, and it is natural that the “parent company/subsidiary company”

　Conflicts of interest, such as incorporating real estate owned by the company/our company, or entrusting AM/PM during management to a group company.

　 Transactions with people are likely to occur. At that time, financial instruments business operators, etc. must manage conflicts of interest as required by their licenses.

　 Although the company understands its importance, it does not communicate with its parent company or subsidiaries, and in reality, transaction prices and transactions are subject to pressure from the parent company.

　 I have also heard of forced withdrawal dates. In fact, as a result of our internal audits of financial instruments business operators, etc., we found that

　 There are certain cases where an “x” is given in terms of the appropriateness of the real estate transaction price and the independence of the appraiser, etc. who conducted the appraisal.

　are doing.

　In response to this administrative punishment, many businesses must have straightened their heads and said, ``Tomorrow will be my fault.'' Both financial instruments business operators and real estate specified joint venturers need to understand the importance of managing conflicts of interest as a whole group, including parent companies and subsidiaries. In addition, as there are cases where the internal control system established at the time of license acquisition has become a mere skeleton, it is necessary to reconfirm the details of interested parties and conflict of interest transactions managed within the company, and to identify discrepancies between the content of internal regulations and the actual situation. You should check and verify whether the content is appropriate based on the actual situation.

2. Future testing trends　　

• This is the first case of administrative punishment related to investment corporations in about 2008 years, since several cases occurred in 14. The case has been attracting attention due to the disposition of cases involving well-known major business operators, but future trends in securities inspections are also a matter of concern.

　 Looking at past cases of administrative penalties, there were four administrative penalties related to investment corporations from the year the Financial Instruments and Exchange Act was enacted to the following year (2007-2008). Going back even further, in 4, before the enforcement of the Financial Instruments and Exchange Act, multiple investment corporation-related administrative penalties were issued in quick succession, and there is a tendency for investment corporation-related administrative penalties to continue.

　Furthermore, in the “Securities and Exchange Surveillance Commission Medium-Term Activities Policy (2023th period: 1 to 27)” announced on January 11, 2023, “Securities inspections based on a risk-based approach/Investor damage cases Policies such as "proactive efforts/strengthening of response capabilities to atypical and new types of cases, etc." were cited, and the policy was stated to select testing sites on a risk-based basis and to strive for substantively meaningful verification. There is. In fact, since the coronavirus, the number of tests itself seemed to be decreasing, but over the past six months or so, the frequency of reports from customers that they have been tested has gradually increased. Not only investment corporation asset management companies but also financial products business operators need to reconfirm, verify, and review their internal management systems to ensure that there will be no problems no matter when an inspection is conducted.

[reference]

・“Administrative penalty case collection”

https://www.fsa.go.jp/status/s_jirei/kouhyou.html　(From the Financial Services Agency website)

・“Securities and Exchange Surveillance Commission Medium-term Activity Policy (11th period: 2023-2025)”

https://www.fsa.go.jp/sesc/news/c_2023/2023/20230127-1.html　(From the Securities and Exchange Surveillance Commission website)

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