On 9 February 2017, the Prudential Regulation Authority (“PRA”) imposed a fine of £17.85m on The Bank of Tokyo-Mitsubishi UFJ Limited (“BTM”) and a fine of £8.9m on MUFG Securities EMEA plc (“MUFG”) for failing to be open and cooperative with the PRA in relation to an enforcement action into BTM by the New York Department of Financial Services (“DFS”).
BTM reached a settlement with the DFS which was publicly announced by the DFS in November 2014 and resulted in a $315m fine. The DFS enforcement action also had implications for the then Chair of MUFG. BTM provided timely notice to its Japanese and certain US regulators of these facts, but did not notify the PRA until after the public announcement.
The PRA has eight Fundamental Rules which apply to all PRA authorised firms. These rules promote the safety and soundness of regulated firms.
Fundamental Rule 6 provides that a firm must organise and control its affairs responsibly and effectively. The PRA expects a firm which operates across multiple jurisdictions to ensure that it is organised so that when issues arise in one jurisdiction which may affect others, the regulatory responsibilities of the firm as a whole are appropriately considered. This is all the more so where, as with MUFG’s Chair, senior managers have roles across a number of entities within a group. Such individuals must ensure they consider the regulatory responsibilities of each firm, as well as their own responsibilities to the UK regulators. The PRA considered that BTM’s inadequate systems and controls for the communication of relevant information contributed to the failure of Fundamental Rule 7.
Fundamental Rule 7 provides that a firm must deal with its regulators in an open and co-operative way and must disclose to the PRA appropriately anything relating to the firm of which the PRA would reasonably expect notice.
The PRA’s role is to promote the safety and soundness of firms. As set out in the Final Notice (paragraph 3.1), “The PRA’s proactive and forward-looking supervisory approach, assessing safety and soundness not just against current risks, but also against those that could plausibly arise further ahead, requires an open dialogue with firms”. The Final Notice goes on to explain that the PRA expects that of their own initiative, firms should ensure the PRA has all relevant information at an early stage. Such information should include the potential for material sanctions to be imposed by an overseas regulator, matters which may have a significant adverse impact on a firm’s reputation, and matters which may be relevant to an assessment of the fitness and propriety of regulated individuals. The PRA criticised BTM for its inadequate reporting systems. It had failed to provide information to the PRA thereby hindering the PRA’s ability to effectively supervise firms and thereby to advance its statutory objectives.
Regulated firms with an international reach need to ensure that they have adequate reporting mechanisms and procedures to ensure that all relevant regulators are kept adequately informed and to adopt a proactive approach as to their communications with the PRA.