The Japan Securities and Exchange Surveillance Commission has recommended that the Prime Minister and the Commissioner of the Financial Services Agency take administrative action against Capital Financial Advisors Co., Ltd. following an inspection of its financial products brokerage business. The inspection found that the firm’s sales staff misled customers when soliciting Turkish lira bonds, including by presenting uncertain future price movements as effectively assured and by failing to explain material risks. Capital Financial Advisors, a subsidiary of Capital Partners Securities Co., Ltd., had accepted 11 commission-based sales staff from that parent between May 2024 and January 2025. Those staff continued selling Turkish lira interest-bearing bonds, zero-coupon bonds and callable zero-coupon bonds on behalf of Capital Partners Securities. In 10 cases involving three salespeople and 10 customers, staff told clients that bond prices would steadily move toward the call price and suggested mid-term sales would generate gains in foreign currency terms, despite being able to confirm from market data that prices were unstable and not rising as described. The sales approach also emphasized high foreign currency yields, issuer credit ratings and prospects of a rebound in the TRY/JPY exchange rate, while not specifically explaining break-even exchange rates or the possibility of trading losses. The commission said the firm lacked an effective management system for ensuring appropriate solicitation, with compliance effectively handled by Capital Partners Securities’ internal control department and the president, who also oversaw internal control at the parent, failing to prevent similar misconduct from continuing over many years. The conduct was assessed as prohibited under the Financial Instruments and Exchange Act.

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