By Emi Emoto and Thomas Wilson

TOKYO (Reuters) - Japanese authorities are set to recommend new fair disclosure rules that aim to prevent company executives leaking insider information, part of Prime Minister Shinzo Abe's push to improve corporate governance and encourage foreign investment.

Marking the first time that Japan will adopt statutory rules on corporate disclosure, the move will likely broaden the scope of current requirements put in place by the Tokyo Stock Exchange and clarify what constitutes material and insider information.

While the extent of corporate leaks in Japan is hard to gauge, the government is keen to shake up a business culture that has often been criticized for prioritizing the interests of executives over shareholders.

The measures are also a response to recent scandals involving Deutsche Bank's <DBKGn.DE> and Credit Suisse Group AG's <CSGN.S> local securities units leaking corporate earnings information to clients. The Financial Services Agency censured the brokers but invited criticism when the companies behind the original leaks weren't named or punished.

Even so, in a nod to concerns of small firms worried about the burden of compliance, the FSA is expected to take a 'soft' approach and executives that break the rules will not face criminal penalties such as fines - unlike the United States.

That approach has won the backing of investors and companies alike.

"There's a concern about enforcement. Many small and mid-sized firms wouldn't be able to respond to those rules," said Shota Watanabe, fund manager at Rheos Capital Works which manages assets of around $1.8 billion, adding that overall he supported the rules.

"Rules that are too onerous could turn into a policy that kills young entrepreneurs and leaves only large firms standing."

An FSA panel discussing the rules met for a final time on Friday, and the agency will likely submit legislation to parliament next year after details on what the rules will say are hammered out.

"For people who don't know Japan but are looking to make investments, clearly defined rules will give them more faith in the system," said Yuji Mano, a member of the FSA panel and general manager of investor relations at trading house Mitsui & Co Ltd <8031.T>.

Currently, Tokyo bourse rules for companies cover how they release information such as share offerings, changes in capital or major shareholders as well as earning results or revisions to performance estimates.

Areas that might be covered by the new FSA rules include unpublished information on companies or financial products that could influence share prices if made public.

The plans come amid a slew of other reforms to boost corporate governance under Abe's administration.

In October, Japan's securities industry body introduced guidelines on how analysts should gather information from listed companies in a bid to prevent leaks.

Last year, the Tokyo bourse also introduced a new governance code that while not legally binding, aims to secure equal treatment of shareholders, big and small, by companies.

Regulators are also planning new rules to improve standards in the auditing profession to avert scandals like last year's $1.3 billion overstatement of profits by Toshiba Corp <6502.T>, which was missed by Japan's biggest auditor for years.

(Reporting by Emi Emoto and Thomas Wilson; Editing by Edwina Gibbs)