Operations at AIJ Investment Advisors, which manages group pension funds for more than a hundred firms, have been suspended for a month.
It came after reports in Japan alleged that the firm may have covered up losses for years.
Authorities said they would also probe all other investment firms in Japan.
“The Financial Services Agency (FSA), together with the labour ministry, will take every possible step to prevent this kind of incident from happening again,” said Shozaburo Jimi, the head of the FSA.
The report has taken analysts and industry watchers by surprise.
“It is very difficult to understand how they were able to hide all these losses,” Yuuki Sakurai of Fukuko Capital Management told the BBC.
“They should have had accounting firms checking all their balance sheets.”
At the same time, analysts said that investment firms also provided their clients with reports of how and where their money had been invested.
The news of AIJ’s losses comes just months after another Japanese firm Olympus admitted that it hid $1.7bn in losses for as long as 20 years.