Japanese Regulators Vow to Tighten Financial Rules : Securities: Authorities are the target of criticism in the wake of scandals at two top brokerages.

A day after payback scandals and reported links to organized crime rocked two of Japan’s top brokerages, the government Tuesday pledged financial reforms, and the police called for a crackdown on business ties with gangsters.

The nation’s financial authorities, who have come under fire for lax supervision of the securities business, said they would tighten controls.

And the head of national security ordered an investigation of the industry’s links with Japanese crime syndicates, known as yakuza.

On Monday, the presidents of two of Japan’s biggest brokerages--Nomura Securities Co. and Nikko Securities Co.--shocked the industry and stock markets around the world by announcing their resignations.

They quit after disclosures that their companies had compensated big clients for trading losses and that affiliates had loaned money to the Inagawa-kai, Japan’s second-largest crime syndicate.

But despite pledges to change, critics said dubious deals and underworld links are part of doing business in Japan and would be hard to prevent.

“Scandal is an inherent characteristic of the Japanese financial system,” said Robert Zielinski, a financial analyst at Jardine Fleming Securities Ltd. and author of a book on Japan’s gangsters. “It’s part of Japan.”

Finance Ministry officials pledged that they will issue new rules to curb brokerage paybacks to clients for losses on stocks. The regulations will toughen rules that were issued in 1989 to deal with the same problem.

The ministry also plans to issue a new regulation authorizing legal action against firms making paybacks, whether or not there was a prior agreement.

Under current law, promising to make good on losses violates Japan’s Securities and Exchange Act, but merely covering the losses later does not. The practice undermines the confidence of small investors in financial markets.

At a news conference, Finance Minister Ryutaro Hashimoto also encouraged the securities industry to take steps on its own to curb the practice.

The scandals shed light on how the gangs have expanded from their traditional havens of drugs and gambling into more mainstream businesses, officials and analysts said.

The head of national security, Cabinet Minister Akira Fukida, promised change.

“There’s no way we will permit the securities industry to back organized crime syndicates,” Fukida, who heads the National Public Safety Commission, told reporters.

But links between the yakuza and brokers are unlikely to be eradicated swiftly, police officials and analysts said.