TOKYO – Japan’s ruling party plans to propose stronger enforcement against suspected violations of shareholder disclosure rules by activist investors, including by providing more resources to the securities watchdog, a senior lawmaker told Reuters.

The proposals come as Japan has become one of the world’s busiest markets for activist investing outside of the US, attracting hedge funds that have pushed companies to raise returns, unwind cross-shareholdings and improve governance.

“The presence of activists has created healthy tension for management and helped drive positive change,” said Fumiaki Kobayashi, who heads a group of Liberal Democratic Party (LDP) lawmakers examining corporate governance.

“But there are cases where short-term demands by some activist shareholders may discourage growth investment, and there are concerns about those who may be disregarding rules,” he said.

Kobayashi did not name any activist shareholders who may have flouted disclosure rules.

He pointed to recent revisions of disclosure regulations that specified the scope of deemed joint holdings, aimed at addressing concerns over so-called wolfpack activity, in which investors are suspected of acting in concert while avoiding disclosure requirements.

“The challenge now is ensuring effective enforcement,” he said.

The Securities and Exchange Surveillance Commission, the country’s securities watchdog, should be given the resources needed to investigate suspected violations, including additional personnel and greater use of digital tools, he added.

Asked about potential cases where activist funds and private equity firms may coordinate around a takeover, Kobayashi said any agreement with a private equity firm concerning a future share transfer should be disclosed in shareholding filings.

“If such arrangements were not disclosed, it would warrant stricter regulatory enforcement,” he added.

Kobay...