Administrative Action against MUFG Affiliates: Largest Financial Group’s Repeated Transgressions Are Appalling

It is regrettable that Japan’s largest financial group repeatedly violated laws and regulations with disregard for its customers. The internal control framework must be examined, and measures to prevent a recurrence of similar irregularities must be implemented thoroughly.

The Financial Services Agency has issued business improvement orders under the Financial Instruments and Exchange Law to three companies affiliated with Mitsubishi UFJ Financial Group Inc. (MUFG) for sharing non-public information about their borrowing firms without those firms’ consent.

MUFG Bank and two affiliated securities firms violated the firewall regulation — which prohibits banks and securities firms from sharing undisclosed information about their customers without the customers’ consent — by using information about nine client firms from 2021 to 2023, the agency said.

As Japan’s largest financial company, MUFG should take the lead in upholding the rules of its industry. MUFG should take seriously the fact that there were numerous firewall regulation violations at its affiliates.

The firewall regulation was introduced in 1993 when banks were allowed to enter the securities business through their subsidiaries.

In general, companies that receive loans from banks tend to be in a vulnerable position, as banks hold information about those companies’ financial conditions.

For this reason, the firewall regulation is intended to prevent banks from abusing their dominant position and forcing their loan recipients to engage in unreasonable transactions with the banks’ affiliated securities firms. The aim is to protect customer information and ensure a fair competitive environment.

However, a senior managing executive officer of MUFG Bank at the time passed information about a stock offering to a vice president of an affiliated securities firm, despite repeated requests by the client companies not to give such information to its affiliated securities firms, according to the agency.

This is believed to have been done to ensure the affiliated securities firm’s position as the lead manager when selling shares, and to increase the group’s earnings. It shows a gross disregard for customers.

In addition, MUFG Bank employees made at least 28 solicitations for securities, which banks are prohibited from doing.

The insufficient awareness of legal compliance is obvious. The group as a whole needs to review its internal control framework.

As international competition regarding financial services intensifies, the importance of services that are strengthened through close cooperation between banks and securities firms has been noted, and the firewall regulation has been eased in stages.

While independent securities companies, such as Nomura Securities Co., have opposed the abolishment of regulations, MUFG Bank and other megabanks have strongly desired the deregulation.

If megabanks want to proceed with discussions on further deregulation, the starting point is to demonstrate that they are trustworthy. It is hoped that they will keep this in mind.

(From The Yomiuri Shimbun, June 26, 2024)