FSA TAKES ACTION AGAINST DEUTSCHE SECURITIES INC. FOR ENTERTAINMENT OF PENSION FUND OFFICERS  

In December 2013, the Japanese FSA issued an improvement order against Deutsche Securities Inc (Deutsche Securities) as a result of entertainment expenses incurred by of its pensions' solutions group. The pension fund employees involved, are legally deemed to be public officials as their portfolios are partially invested in Japan's national pension scheme.

The FSA action followed a recommendation by the Japanese Securities Exchange Surveillance Commission. A Deutsche Securities official and the former executive of one of the pension funds have been arrested in connection with bribery charges stemming from the same entertainment and have subsequently been charged.

The FSA found that during the period June 2010 to December 2012 Deutsche Securities provided officers of three pension funds with benefits to the value of approximately JPY6.27 million (US$60,300) for the purposes of selling financial products including index-linked bonds structured by Deutsche Securities. Providing entertainment to such public officials with regard to contracts for a financial instrument transaction is in breach of the Japanese Financial Instruments and Exchange Act.

Since December, Deutsche Securities has closed the pensions solutions group and ensured that all public servants (including pension fund employees) are removed from the list of clients Deutsche Securities employees are allowed to entertain. It has been reported that Deutsche Securities' Chief Operating Officer and Chairman will both receive a 30% reduction in pay for six months as a consequence and further disciplinary action will be taken against the Deutsche Securities employees responsible for the entertainment.

The FSA's statement can be found here, Deutsche Securities Inc.'s response can be found here (Japanese only).

FURTHER DEVELOPMENTS IN THE MIZUHO "ANTI-SOCIAL FORCES" LOANS SCANDAL  

As noted in our updates in November and December 2013, Mizuho Bank, Ltd. (Mizuho) was issued with a Business Improvement Order (the Order) by the Japanese FSA in connection with consumer credit loans.

As a result of the FSA's follow-up investigation Mizuho has suspend new credit-offering transactions in relevant captive loan schemes between 20 January and 19 February 2014. Mizuho has also produced a modified business plan which includes the implementation of a new corporate structure including business committees monitored by outside directors, in an effort to strengthen corporate governance. Mizuho has also announced that chairman Takashi Tsukamoto will resign on 31 March 2014.