On June 24, Japan’s Financial Services Agency (“FSA”) issued
business improvement orders to MUFG Bank and MUMSS under Article
51, paragraph 2 and Article 51 of the Financial Instruments and
Exchange Act, and request for reporting to MUFG and MUFG Bank under
Article 52, paragraph 31-1 and Article 24, paragraph 1, of the
Banking Act.
Today, MUFG, MUFG Bank, and MUMSS submitted documents including
business improvement plans to the FSA based on its business
improvement orders and request for reporting.
We sincerely apologize again for the inconvenience and concern
this is causing our customers and other stakeholders.
We take these incidents very seriously, and will enact more
effective policies to prevent recurrence, steadily implementing
these business improvement plans across the Group to restore trust
by realizing customer-centric sales activities that leverage the
Group’s collective strengths.
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Regarding root causes of
the incidents and measures for improvement, etc., reported in the
documents submitted
1. The incidents and their root causes
MUFG has been advancing collaboration between its Group
companies in order to leverage the Group’s collective strengths to
meet customers’ diverse needs. In this administrative actions,
inappropriate activities, primarily in collaboration between MUFG
Bank and MUMSS (“bank-securities collaboration;” also includes
collaboration between MUMSS and Morgan Stanley MUFG Securities Co.,
Ltd.) to advance business were identified, including improper
sharing of customer information between bank and securities,
inadequate arrangements for managing corporate information
(including trading by a former MUFG Bank employee solely in pursuit
of their speculative profit), and solicitation/negotiations related
to equity and bond underwriting, which are securities services that
banks are not permitted to engage in. Having analyzed the causes of
these incidents, we believe their root causes to be as follows.
(1) Overall issue
There were procedures/rules and certain
internal control frameworks in place while proactively advancing
bank-securities collaboration. But considering the balance between
messages promoting leveraging MUFG’s collective strengths to
realize customer-centric sales activities through bank-securities
collaboration, there was insufficient penetration of correct
understanding and consciousness for complying with laws,
regulations, etc., in such collaboration.
(2) Issues in sales divisions
There was insufficient development of risk
ownership by sales divisions amid the growth of bank-securities
collaborative business.
(3) Issues in risk management divisions
Internal control frameworks, which should be
continuously reviewed in light of operational realities, were not
sufficiently expanded, and clarification of operational processes
and procedures/rules matching the reality of bank-securities
collaboration did not progress. Furthermore, enhancement of the
operating model to appropriately recognize risk with an
understanding of the operational situation of sales divisions, and
expansion of monitoring frameworks by risk management divisions
(including risk management functions within sales divisions) were
insufficient.
(4) Issues in management
Management did not properly recognize risks
around a possible imbalance between the messaging of advancing
bank-securities collaboration and notifying/emphasizing relevant
procedures/rules within sales divisions, and were not able to take
appropriate action on the issues above.
2. Measures for improvement to prevent recurrence
Based on the root causes of the incidents identified in 1.
above, we have formulated the following improvement measures to
prevent recurrence of such incidents. Specifically, via the
following five improvement measures (“Revise/emphasize
procedures/rules based on specific examples,” “Enhance training
more in line with practice,” “Review performance evaluations and
reemphasize the objective of group profitability management,”
“Enhance monitoring framework at sales/risk management divisions,”
and “Enhance management framework”) and improvement measures as the
holding company, we will strengthen our management framework,
compliance framework related to bank-securities collaboration, and
internal control frameworks including our customer information
management framework. Some of these measures have already been
implemented.
We will continue and strengthen the improvement measures that
have been implemented since the incidents occurred and steadily
implement new improvement measures to strengthen our framework and
regain the trust of our customers and other stakeholders.
(1) Revise/emphasize procedures/rules based on specific
examples
In addition to reinforcing basic procedures/rules that must be
complied within the bank-securities collaborative business in line
with the 2022 revision of the FSA Supervisory Guideline, we will
clarify/emphasize the following procedures/rules in response to the
incidents identified.
[1] Clarify responses to requests for partial
restrictions on comprehensive consent agreements for information
sharing between bank-securities
- Clarify rules for responding to requests for partial
restrictions on information sharing between bank-securities, made
either verbally or through individual agreements, while maintaining
blanket consent agreements for information sharing between
bank-securities
- Implement centralized strict controls by risk management
divisions regarding the above-mentioned requests
- Implement monitoring by risk management divisions on the status
of implementation of partial restrictions on information
sharing
[2] Establish guidelines regarding the scope
of internal sharing of corporate information
- Emphasize the perspective of the need-to-know principle in
deciding what information shall be shared, even internally
[3] Clarify and reemphasize operational rules
regarding information sharing based on consent agreements
- Reemphasize the purposes for which information can be shared as
stipulated in consent agreements
- Clarify operating rules for information sharing in line with
the objectives specified in consent agreements
[4] Clarify procedures/rules related to the
Banking Act and Financial Instruments and Exchange Act (“financial
law”) in a manner consistent with practice
- Clarify procedures/rules for more accurate understanding of
financial law in a manner consistent with practice
[5] Enhance integrated management of
corporate information
- Establish an integrated bank-securities management framework
for corporate information, whereas it is currently being managed
independently, and realize consistent management and
monitoring
[6] Seamless management of consent
agreements
- Establish a unified management framework of consent agreements
managed in a cross-entity database, enabling timely sharing of
information on the granting/withdrawal of consent agreements
(2) Enhance training more in line with practice
In addition to performing training to disseminate the Code of
Conduct and to notify/emphasize laws and regulations related to
bank-securities collaborative business, enhance training in a more
practical manner by including sharing specific case studies to
address the incidents identified.
[1] Enhance various training programs
- Training on handling of corporate information/consent agreement
content (reemphasize the content/scope of information that can be
shared between bank-securities based on consent agreements, and
that corporate information should be shared to the minimum extent
necessary)
- Training on personal account dealing by executives and
employees (reemphasize personal account dealing procedures/rules
for executives and employees, and raise awareness by showing videos
based on specific examples of improper investing)
- Training on financial law (clarify and reemphasize the line
between permissible/impermissible conduct in bank-securities
collaboration)
- Study sessions on performance evaluations and group
profitability management (penetration of the original purpose of
performance evaluation/group profitability management in an
easy-to-understand form, and notify/emphasize to the front line
based on an understanding of the position of group profitability
management in communication with customers)
- Discussion at the branch/division level based on specific
examples on company-wide compliance training
- Expand training for executives (described in (5))
[2] (MUFG Bank) Strengthen advisory functions
for sales divisions
- Establish a new advisory function on what is
permissible/impermissible under financial law in the practice of
bank-securities collaboration, exceptional handling of information
sharing consent agreements, etc.
- Monitor customer negotiation records and provide guidance and
reminders based on trends identified in those records, as well as
training/study sessions
[3] Confirm penetration
- Continuously confirm the status of penetration by means of
post-training verification tests, questionnaires, on-site
interviews, etc.
(3) Review performance evaluations and reemphasize the objective
of group profitability management
Group collaboration, including bank-securities collaboration, is
intended to meet the diverse needs of customers and realize
customer-centric sales activities that leverage MUFG’s
comprehensive strengths, and performance evaluation/group
profitability management are only a measure of the results. In
order to ensure that bank-securities collaboration is carried out
in line with the original objectives, we will review the processes
and procedures/rules related to performance evaluations and group
profitability management and reemphasize key points.
[1] Revise performance evaluations (rules for
double-counting of profit between bank-securities)
- Exclude prior coordination of needs, etc., from the
requirements for double-counting profit in evaluating the
performance of bank-securities (preventing inappropriate
coordination of information solely for the purpose of
double-counting profit)
[2] Reemphasize the purpose of and key points
of group profitability management
- Reemphasize the purpose of group profitability management (a
tool to measure whether customer-centric sales activities are being
realized)
- Reemphasize key points when using group profitability
management (an internal tool to measure whether customer-centric
Group-based sales activities are being realized, not a tool for
communication with customers)
[3] Raise the weight of compliance items in
organizational evaluations
- Enhance the existing organizational evaluation system by
raising the weight of compliance risk items in organizational
evaluations
- (MUFG Bank) Clarify the process for accurately capturing acts
inimical to risk ownership in sales divisions and disqualifying
them from performance evaluations when identified
- (MUFG Bank) Make it mandatory to include firewall regulations,
corporate information management, other business regulations, etc.,
in sales divisions’ risk ownership management policies
(4) Enhance monitoring framework at sales/risk management
divisions
We have been working to enhance monitoring of customer
negotiation records related to bank-securities collaborative
products and have begun using AI to monitor internal and external
communications. Based on the incidents identified, we will work to
expand the coverage of products/projects and media, as well as to
strengthen the monitoring framework for the Group as a whole.
[1] Expand scope of monitoring
- Expand scope of monitoring to all stages from project
generation to project closing
- Expand and periodically review products in scope of
monitoring
- Expand target media for AI-based communication monitoring
(customer negotiation records, emails, call recordings) through
bank-securities collaboration.
[2] Enhance monitoring framework
- Enhance integrated management of holding
company/bank/securities risk management divisions and clarify
monitoring control tower
- Realize prompt monitoring by establishing a framework for
simultaneous bank-securities monitoring
- Prioritize allocation of additional resources to strengthen
monitoring framework
- (MUMSS) Enhance unified monitoring framework with Morgan
Stanley MUFG Securities
(5) Enhance management framework
In response to the occurrence of the incidents identified,
Crisis Control Headquarters headed by the President & CEOs of
MUFG/MUFG Bank/MUMSS were established, and under the leadership of
the management team, remedial measures were formulated based on an
analysis of the root causes. Management is committed to steadily
implementing and monitoring the progress of the remedial measures.
In order to spread awareness of compliance with laws, regulations,
etc., based on correct understandings, the management team will
clearly communicate to executives and employees, and will work to
enhance our management framework while striving to understand the
actual situation through dialogue with those working at the front
line. Since the involvement of executives in some of the incidents
were recognized, we will also significantly strengthen our response
towards executive officers.
[1] Commitment by management
- Steady implementation/monitoring by management of the remedial
measures formulated
- Communicate messages from top management regarding recognition
of compliance risk, future actions related to this matter,
etc.
- Enhance two-way communication between management and front line
employees, and enhance understanding of the actual situation at the
front line by the top management of business groups and units
[2] Enhance training for executive officers,
etc.
- Conduct training on firewall regulations/financial law when
executive officers are appointed
- When executive officers are appointed, they will promise to
comply with laws and regulations and to accept punishment for
violations (retroactively from existing executive officers as
well)
- Direct guidance by top management to executive officers in
charge of sales (to executive officers appointed in the future as
well)
- Establish/enhance training programs for executive officers
(penetration of compliance awareness based on correct
understandings of laws and regulations via inviting outside experts
as lecturers and utilizing methods such as discussions,
role-playing, and comprehension tests)
[3] Enhance internal control framework in
accordance with business risk
- Prioritize allocation of additional resources to personnel,
systems, etc., to enhance internal control framework in accordance
with business risk (review/enhance organizational structure,
advisory functions, and monitoring framework)
[4] Strengthen penalties for legal
violations
- Enhance penalties for legal violations by
executives/employees
[5] Expand the purview of the Compliance
Committee
- In addition to evaluating compliance risk/deliberating on
compliance programs in each risk area, enhance risk verification in
the axis of important measures of sales divisions/deepen
deliberation on internal control framework for business risk
[6] Verification by internal audit
- Internal audit divisions will verify the appropriateness of
improvement measures and status of their operation/retention
(6) Improvement measures as the holding company
MUFG, from its position as the holding company that
oversees/supervises collaboration among Group subsidiaries, will
enhance management and verify the consistency and effectiveness of
the management framework and improvement measures of each Group
company on a Group-wide basis, and will take the initiative in
reviewing operations/processes across Group subsidiaries.
[1] Review procedures/rules on a Group-wide
basis
- Review procedures/rules of each Group company to ensure
consistency and validity on a Group-wide basis
- Review procedures/rules related to operations/processes across
Group companies
[2] Enhance unified training on a Group-wide
basis
- Confirm consistency and verify effectiveness on a Group-wide
basis vis-a-vis enhancing training at each Group company (if
necessary, create/provide unified training content)
- Caution and notify/emphasize through joint Group training
(training for newly appointed executive officers, senior management
training, integrity training, etc.)
[3] Readjust bank-securities
collaboration-related incentives on a Group-wide basis
- Confirmation/verification of performance evaluation/overall
Group profitability management
[4] Enhance monitoring framework on a
Group-wide basis
- Enhance unified monitoring by risk management divisions of bank
and securities
- Enhance monitoring framework at sales/risk management divisions
of bank and securities
[5] Enhance management frameworks on a
Group-wide basis
- Monitor the progress of improvement measures by the Group
Crisis Control Headquarters meeting headed by the President &
Group CEO.
- Clarify commitment to compliance risk management as a Group
through unified messaging by top management on a Group-wide
basis
- Confirm/verify the appropriateness of resource allocation at
each Group company
- Deliberate on internal control framework for business risk of
important measures of business groups at the Group Compliance
Committee
- Verify the effectiveness of improvement measures and the status
of implementation/retention of measures through the above
initiatives
3. Disciplinary Actions Against Executives
Regarding the problems with bank-securities collaboration at
MUFG Bank and MUMSS, management of corporate information, and
monitoring framework in relation to these matters, we take our
responsibility very seriously and will reduce compensation of the
following executives.
(1) MUFG
Member of the Board of Directors,
Chairman
Kanetsugu Mike 30% of monthly compensation ×
5 months
Member of the Board of Directors, President
& CEO (Representative Corporate Executive)
Hironori Kamezawa 30% of monthly compensation
× 3 months
(2) MUFG Bank
Chairman of the Board of Directors
(Representative of the Board of Directors)
Naoki Hori 30% of monthly compensation × 2
months
President & CEO (Representative of the
Board of Directors)
Junichi Hanzawa 30% of monthly compensation ×
3 months
(3) MUMSS
Deputy Chairman (Chairman (Representative of
the Board of Directors) of Mitsubishi UFJ Securities Holdings)
Saburo Araki 30% of monthly compensation × 2
months
President & CEO (Representative of the
Board of Directors)
Makoto Kobayashi 30% of monthly compensation
× 3 months
In addition to the above, executives involved in this incident
will be strictly disciplined according to internal rules.
Furthermore, we have requested certain retired executives return
the equivalent amounts of their compensation, and have received
their consent.
MUFG Bank former Member of the Board of Directors
Muneya Taniguchi 10% of monthly compensation
× 3 months
MUFG Bank former Senior Managing Executive Officer
Taiju Hisai 30% of monthly compensation × 3
months
MUFG Bank former Managing Executive Officer
Hiroshi Takimoto 10% of monthly compensation
× 3 months
Mitsubishi UFJ Morgan Stanley Securities former Deputy President
(Representative of the Board of Directors)
Haruo Nakamura 30% of monthly compensation ×
3 months
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About MUFG
Mitsubishi UFJ Financial Group, Inc. (MUFG) is one of the
world’s leading financial groups. Headquartered in Tokyo and with
over 360 years of history, MUFG has a global network with
approximately 2,000 locations in more than 40 countries. The Group
has about 120,000 employees and offers services including
commercial banking, trust banking, securities, credit cards,
consumer finance, asset management, and leasing. The Group aims to
“be the world’s most trusted financial group” through close
collaboration among our operating companies and flexibly respond to
all of the financial needs of our customers, serving society, and
fostering shared and sustainable growth for a better world. MUFG’s
shares trade on the Tokyo, Nagoya, and New York stock exchanges.
For more information, visit https://www.mufg.jp/english.
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version on businesswire.com: https://www.businesswire.com/news/home/20240719466965/en/
MUFG Bank, Ltd. Toshinao Endou, +81-3-3240-1111 Managing
Director, Head of Documentation & Corporate Secretary
Department Corporate Administration Division