Tokyo reprimands bank for unit-trust sales lapses

Bank of Tokyo-Mitsubishi UFJ is ordered to clean up compliance around the sale of unit trusts as well as wayward managers in overseas branches.
JapanÆs Financial Services Agency has slapped a pair of improvement orders on Bank of Tokyo-Mitsubishi UFJ, punishing the firm for failing to compensate investors in unit trusts following errors by the distributor.

Unit trust sales, particularly for diversified overseas products, have taken off in the past two years as more Japanese savers realise the need to invest in capital markets to ensure a financially secure retirement. But distribution, in particular a culture of financial planning and advice, remains embryonic. The funds industry as well as other distributors and the authorities have a stake in seeing investor confidence in unit trusts grow, so errors and poor compliance at key distributors is a potential problem.

The FSA found BMT UFJ had often committed mistakes out of negligence, including the failure to place orders and make erroneous orders, causing losses to customers. Instead of compensating customers for these losses, the bank merely apologised and tried to reconfirm transactions and thereby appear to resolve the matter. In some cases it did compensate customers when they filed complaints.

The bank is the result of a 2005 merger between Bank of Tokyo-Mitsbuishi and UFJ Bank. The latter had an explicit policy of compensating customers in such cases, with a simply apology deemed insufficient; but BTM did not have such provisions, and following the merger the new bank adopted BTM working practices.

ôThe bank is found to have been inadequate in thoroughly enforcing the principle of investor protection...including giving priority to business performance over investor protection,ö says the FSA. Compliance procedures failed and senior managers were unaware of sales errors.

The FSA is calling on the bank to develop and enhance its compliance system and internal controls to create a customer-focused sales system. The bank must present a business plan to implement this by July 11.

Separately, the FSA has given the bank a business improvement order related to its overseas branches, where a number of lapses have been found. Among others: its New York branch has been found wanting by American and Japanese regulators regarding money laundering controls, while a branch manager in Shanghai was caught accepting bribes over procurement.
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