Business Improvement Order on MUFG Firms

The Financial Services Agency (MSA) took administrative action against three financial institutes in Mitsubishi UFJ Financial Group on their illegal treatment of information that they obtained from their customers through their business. FSA issued a business improvement order to each of them, requiring the plan for improvement. The illegal activities by the top runner of financial groups in Japan may slowdown the coordination between bank and securities firm.

The administrative action was taken to Mitsubishi Morgan Stanley Securities (MUFSS), Morgan Stanley MUFG Securities (MSMS) and MUFG Bank (MUBK). Securities and Exchange Surveillance Commission of MFA found in its inspection that the board members of MUFSS shared non-public information of their clients with MSMS and MUBK.

 

The Financial Instruments and Exchange Act (FIEA) prohibits providing or receiving non-public client information without consent of the client. Acknowledging that legal requirement, those board members provided or obtained the information at least thirteen times and shared it within MUFSS.

 

MFA raised two examples. One is that the vice-president of MUFSS obtained from MSBK information on when and how the stocks of company-A would be on sale and shared that information in MUFSS to achieve the status of leading manager for sales of the stocks. The company-A demanded MUBK not to share the information with other firms.

 

Another example is about acquisition of company. Company-B needed loan from MUBK for acquisition of another company. A worker for MUFSS obtained that information and shared it, knowing its illegality, within MUFSS and provided it to MSMS. MFA recognized that those activities would violate FIEA.

 

FSA ordered those three firms to clarify responsibilities of the managers, to develop an effective business improvement plan, and report the plan by late July. FSA indicated that internal system for compliance was not effectively established in those three firms, recommending fundamental improvement.

 

The government introduced “firewall regulation,” restricting information sharing between a bank and a securities firm, in 1993 when the banks allowed participating in securities business. It was aimed to prevent the major banks to take advantage of their dominant position in securities business. The illegal activities in MUFG group may affect the deregulation of the firewall, which major banks hope to promote.

 

It was later reported that FIEA had made an investigation in the headquarters of MUBK in May, with suspect of leaking non-public information of a client about its takeover bid. Heading to a new phase of financial business with interest, promoted by policy change of the Bank of Japan, banking business is facing competitive situation. Strict compliance would be required more than ever.

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