On 9 February 2017 the PRA issued its Final Notice in respect of its investigation against The Bank of Tokyo-Mitsubishi UFJ Limited ("BTMU") and MUFG Securities EMEA plc ("MUS(EMEA)") which imposed financial penalties of £17.85m against BTMU and a fine of £8.925m against MUS(EMEA) for failing to be open and co-operative with the PRA in relation to enforcement action into BTMU by the New York Department of Financial Services ("DFS").
BTMU is an international bank headquartered in Tokyo, with over 850 branches worldwide, including one in London. It is a subsidiary of Mitsubishi UFJ Financial Group, Inc, the "Parent Company" of a global banking network also headquartered in Tokyo. MUS(EMEA) is an UK-incorporated subsidiary of Mitsubishi UFJ Securities Holding, which itself is a subsidiary of the Parent Company. Both BTMU and MUS(EMEA) provide commercial banking, securities, consumer finances and other services and, as such, regulated by the PRA for prudential purposes and the FCA for conduct matters.
In November 2014 BTMU was fined $315m for pressuring its consultant to water down a supposedly objective report on BTMU’s dealings with sanctioned countries, submitted to DFS, thereby misleading regulators. The DFS enforcement action also had implications for the then Chair of MUS(EMEA).
The PRA found that BTMU’s systems, policies, procedures and controls for the communication of information relevant to the DFS enforcement action were inadequate. In consequence:
UK regulatory implications were not adequately considered by those managing BTMU's negotiations with the DFS in relation to the enforcement action; and
There was a failure to be open with the PRA. It was considered that those with regulatory reporting responsibilities within BTMU and MUS(EMEA) could not appropriately consider whether notifications needed to be made to the PRA. Indeed, neither firm informed the PRA of the DFS action until after the DFS’ public announcement.
As a result, the PRA found that BTMU breached Fundamental Rules 6 and 7 of its Rulebook and that MUS(EMEA) breached Fundamental Rule 7. Fundamental Rule 6 requires firms to organise and control their affairs responsible and effectively, while Fundamental Rule 7 requires firms to deal with their regulators in an open and co-operative manner.
This is the first time that the PRA has taken enforcement action against a financial institution for breaches of Fundamental Rules 6 and 7, and it has not held back any punches. The level of fine could have been 30% higher, as this discount was agreed to take into account the firms' early settlement with the PRA. It also appears that little credit was given for the remedial action undertaken by BTMU and MUS(EMEA) since 2014 in order to develop and implement measures to enhance the sharing of information relating to regulatory investigations.
It is helpful that in the PRA's Final Notice they make clear what their expectations are of authorised firms, who are advised to take note of the following:
To engage in an open dialogue with the PRA and take initiative to ensure the PRA has all relevant information at an early stage.
Where a firm operates across multiple jurisdictions, it is expected to be organised such that, when issues arise concerning its operations in one jurisdiction which may impact on other jurisdictions, the regulatory responsibilities of the firm as a whole are appropriately considered.
To consider the regulatory responsibilities of each firm, as well as their own responsibilities to the UK regulators, where the firm's senior managers have roles and responsibilities in more than one entity within a group.
To have in place adequate reporting systems to ensure the timely and accurate provision of information by firms to the PRA..
In summary, Sam Woods, Deputy Governor, Prudential Regulation and CEO of the PRA said that: "We expect all firms to be open and straightforward in their dealings with the PRA. Where firms fall short of this expectation, we will enforce it.” The PRA have certainly got this message across in this case.