Today, the Financial Services Agency (hereinafter “FSA”) took administrative actions against Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. (Chiyoda City, Tokyo; corporate number: 4010001129098; hereinafter “MUMSS”), Morgan Stanley MUFG Securities Co., Ltd. (Chiyoda City, Tokyo; corporate number: 2011001046046; hereinafter “MSMS”), and MUFG Bank, Ltd. (Chiyoda City, Tokyo; corporate number: 5010001008846; hereinafter “MUBK”), as described in I. below. In addition, the FSA asked to submit reports as described in II. below to MUBK and Mitsubishi UFJ Financial Group, Inc. (Chiyoda City, Tokyo; corporate number: 4010001073486; hereinafter “MUFG”).
I. Administrative action against MUMSS, MSMS and MUBK
1. Reasons for the administrative action
As a result of conducting an on-site inspection of MUMSS, MSMS and MUBK, the Securities and Exchange Surveillance Commission (hereinafter “SESC”) made a recommendation for taking an administrative action on June 14, 2024, based on the findings of the following violations of laws and regulations, etc.
The Financial Instruments and Exchange Act (hereinafter “FIEA”) prohibits a Financial Instruments Business Operator from providing and/or receiving non-public client information among financial firms within the group, without the consent of clients. Nevertheless, the above three firms repeatedly shared non-public client information, knowing that their clients asked not to share their information with other firms within the group, and some of the information contained material information that would impact investment decisions. These findings led to the conclusion that the three firms had deficiencies in internal control environment for the management of information. (The SESC also found that one employee of MUBK had engaged in unfair trading in violation of the FIEA due to these deficiencies.)
Furthermore, the FIEA prohibits a Financial Instruments Business Operator from soliciting the financial instruments transaction contract by using non-public information without the consent of their clients. The SESC found, however, that a board member of MUMSS had received confidential information of their clients from an executive officer of MUBK, and MUMSS, together with MSMS, used the information for solicitation of offer to sell financial instruments to their clients.
Lastly, the FIEA prohibits a bank from conducting Securities-Related Business (underwriting business). Nevertheless, MUBK repeatedly negotiated for the underwriting shares on behalf of MUMSS. Among such cases, it was found that MUBK had engaged in a tie-in negotiation, asking for more underwriting shares of MUMSS as a condition of MUBK’s loan agreement.
2. Content of the orders
2-1. MUMSS
〇 Business improvement order (Article 51 of the FIEA)
(1) Conduct measures such as the followings so as to ensure sound and appropriate operation of the business:
(i) Clarifying where responsibilities lie, including managerial responsibilities, in light of the administrative action; and
(ii) Promptly developing and steadily implementing an effective business improvement plan, including the following point, based on an analysis of the fundamental causes of the cases:
・Strengthening of business management framework and internal control environments, including compliance related to bank-securities collaborative business, etc. and client information management
(2) Report the business improvement plans mentioned in (1) above in writing by July 24, 2024.
(3) Report the implementation status mentioned in (2) above in writing in the immediate future, no later than within 15 days from the end of the quarter.
2-2. MSMS
〇 Business improvement order (Article 51 of the FIEA)
(1) Conduct measures such as the followings so as to ensure sound and appropriate operation of the business:
(i) Clarifying where responsibilities lie, including managerial responsibilities, in light of the administrative action; and
(ii) Promptly developing and steadily implementing an effective business improvement plan, including the following point, based on an analysis of the fundamental causes of the cases:
・Strengthening of business management framework and internal control environments, including compliance related to bank-securities collaborative business, etc. and client information management
(2) Report the business improvement plans mentioned in (1) above in writing by July 24, 2024.
(3) Report the implementation status mentioned in (2) above in writing in the immediate future, no later than within 15 days from the end of the quarter.
2-3. MUBK
〇 Business improvement order (Article 51-2 of the FIEA)
(1) Conduct measures such as the followings so as to ensure sound and appropriate operation of the business:
(i) Clarifying where responsibilities lie, including managerial responsibilities, in light of the administrative action; and
(ii) Promptly developing and steadily implementing an effective business improvement plan, including the following point, based on an analysis of the fundamental causes of the cases:
・Strengthening of business management framework and internal control environments, including compliance related to bank-securities collaborative business and client information management
(2) Report the business improvement plans mentioned in (1) above in writing by July 24, 2024.
(3) Report the implementation status mentioned in (2) above in writing in the immediate future, no later than within 15 days from the end of the quarter.
II. Requests for submission of reports to MUBK and MUFG
Based on the FSA’s inspections of MUBK and MUFG, the inadequacy of business management framework and internal control environment were found, the FSA today asked MUBK and MUFG to report under the Banking Act, as follows.
1. Reporting request to MUBK (Article 24 (1) of the Banking Act)
(1) Matters to report:
(i) Analysis of facts and causes (including true cause analysis) of the cases found in relation to prohibition of other business stipulated in Article 12 of the Banking Act and client information management measures stipulated in Article 12-2 (2) of the Banking Act, as well as awareness of issues based on the analysis.
(ii) Effective improvement measures (including the implementation plan and the implementation status, etc. of the improvement measures) to prevent recurrence, based on (i), including the following point:
・Strengthening of business management framework and internal control environments, including compliance related to bank-securities collaborative business and client information management
(2) Due of the reports:
(i) Report on the matters mentioned in (1) above by July 24, 2024.
(ii) Report the implementation status of (2) (i) in the immediate future, no longer than within 15 days after the end of the quarter.
2. Reporting request to MUFG (Article 52-31 (1) of the Banking Act)
(1) Matters to report:
(i) Analysis of the causes of the occurrence (including true cause analysis) as a bank holding company in light of the cases of prohibition of other business stipulated in Article 12 of the Banking Act and client information management measures stipulated in Article 12-2 (2) of the Banking Act recognized at its subordinate company, MUBK, and awareness of issues based on this analysis.
(ii) Effective improvement measures (including the implementation plan and the implementation status of the improvement measures) to prevent recurrence as a group, based on that case, including the following point:
・Strengthening of business management framework and internal control environments, including compliance related to bank-securities collaborative business and client information management
(2) Due of the reports:
(i) Report on the matters mentioned in (1) above by July 24, 2024.
(ii) Report the implementation status of (2) (i) in the immediate future, no longer than within 15 days after the end of the quarter.
Contact
Financial Services Agency
Tel +81-(0)3-3506-6000 (main)
Securities Business Division, Supervision Bureau (ext. 2368, 5471)
Investment Banks and Foreign Firms Monitoring Office, Supervision Bureau (ext. 2929, 2835)
Banking Business Division I, Supervision Bureau (ext. 3765, 3388)
