Japanese Financial Watchdog Recommends Administrative Action Against MUFG Group Entities

The Securities and Exchange Surveillance Commission (SESC) has recommended that administrative disciplinary action be taken against MUFG Bank, Ltd. (MUBK), Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. (MUMSS), and Morgan Stanley MUFG Securities Co., Ltd. (MSMS). This decision follows a comprehensive inspection revealing serious violations under the Financial Instruments and Exchange Act (FIEA).

The SESC's recommendation, addressed to the Prime Minister and the Commissioner of the Financial Services Agency (FSA), stems from findings indicating systematic breaches across the three financial entities. The violations primarily concern the improper handling of non-public client information and illicit practices related to financial transactions.

The decision comes in response to serious violations under the Financial Instruments and Exchange Act (FIEA), highlighted by the following key findings:

1. Non-Public Client Information Sharing: Despite regulations prohibiting the exchange of non-public client information within the same financial group without client consent, all three firms—MUBK, MUMSS, and MSMS—were found to have repeatedly shared such information. This exchange included material information crucial for investment decisions, directly contravening regulatory guidelines.
2. Improper Use of Confidential Information: A board member of MUMSS reportedly received confidential client information from an executive officer of MUBK. Subsequently, MUMSS and MSMS utilized this information to solicit financial transactions without obtaining client consent, violating FIEA provisions.
3. Unauthorized Underwriting Negotiations: MUBK engaged in underwriting negotiations on behalf of MUMSS, a direct violation of regulations barring banks from conducting securities-related business. Furthermore, instances were identified where MUBK used its underwriting services as leverage in loan negotiations with MUMSS, indicating a disregard for regulatory boundaries.

The SESC's inspection underscores significant deficiencies in the control environments of MUBK, MUMSS, and MSMS, particularly in managing sensitive client information and adhering to legal standards governing financial transactions. The recommendation for administrative disciplinary action seeks to address these lapses and ensure accountability within the MUFG Group entities.

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