Failure to disclose: a warning

Background

In February 2017, the PRA published a Final Notice imposing fines of £8.9m and £17.9m respectively on Bank of Tokyo-Mitsubishi UFJ (BTMU) and its sister company MUFG Securities EMEA (MUFG) for failing to be open and co-operative in respect of a 2014 action brought by the New York Department for Financial Services (DFS) into BTMU. The DFS action related to matters involving BTMU’s conduct in New York and the DFS found that BTMU had pressurised PriceWaterhouseCoopers into softening its findings in an ‘objective’ report into BTMU’s dealings with sanctioned countries.

In November 2018, the PRA announced related findings against two individuals, Mr Akira Kamiya, the former Chair of Mitsubishi UFJ Securities International plc (EMEA) (MUS (EMEA)) and Mr Takami Onodera, a former non-executive director at MUS (EMEA).

Mr Kamiya

Mr Kamiya was approved by the PRA to act as Non-Executive Director and Chair at MUS (EMEA) between 21 September 2012 and 20 November 2014. As a result of the action by the DFS, from 6 November 2014 to 18 November 2014, Mr Kamiya was aware of the possibility that he would be restricted by the DFS from conducting US banking activities.

Despite the requirement under Statement of Principle 4 that Mr Kamiya must deal with the PRA in an open and co-operative way and must disclose appropriately any information of which the PRA would reasonably expect notice, Mr Kamiya failed to notify the PRA of the DFS investigation and potential restriction. Mr Kamiya finally notified the PRA on 18 November 2014, following a public announcement by the DFS that it was prohibiting him from conducting business involving any New York banks (or other financial institutions) regulated by the DFS.

The PRA considered that Mr Kamiya’s failure to make an appropriate notification had hindered its ability to assess whether the DFS matter had, or could have had, an impact on Mr Kamiya’s fitness and propriety. In particular, the Final Notice stated that the PRA’s “ability to assess the fitness and propriety of senior individuals at PRA-authorised firms in full knowledge of the relevant facts is key to ensuring that those senior individuals have the requisite honesty, integrity and reputation, competence and capability and financial soundness to manage firms in a prudentially sound manner”.

Mr Onodera

On 06 October 2014, Mr Onodera, also a Non-Executive Director, received information from a senior MUFG executive relating to the DFS investigation. This included the names of 10 individuals that might be the subject of disciplinary actions by the DFS and one of the named individuals was Mr Kamiya.

The PRA found that Mr Onodera had breached Statement of Principle 4 by failing to disclose to those that were responsible for PRA reporting at MUS (EMEA) the information provided to him on 06 October 2014 in relation to the second DFS matter and the potential implications for Mr Kamiya. While it was unclear what, if any, implications would result for Mr Kamiya, this was information that should have been identified as of material significance to the PRA.

In late October 2014, Mr Onodera was provided with further information relating to Mr Kamiya and was instructed to research what procedures would be required in relation to overseas regulators in the event that Mr Kamiya resigned suddenly. He was provided with further information including on 04 November 2014. As a result, Mr Onodera was of the belief that the information concerning the negotiations with the DFS and implications for Mr Kamiya were confidential and subject to strict controls by the DFS. As such he believed this applied to the disclosure of information to external parties including the PRA. In addition, he was specifically instructed by executives at MUFG not to make a notification to the PRA.

On 8 November 2014, Mr Onodera sought independent English law advice regarding his notification duties, which he received on 15 November 2014. On 14 November 2014 the previous day a MUS (EMEA) senior executive had obtained advice from the same adviser suggesting that notification be made as soon as possible. The regulatory specialist was then briefed by BTMU’s US legal advisors and advised that the PRA should be informed of the second DFS matter and its implications for Mr Kamiya following the publication of the DFS Consent Order.

While the PRA took Mr Onodera’s actions into account and did not find that he had acted dishonestly or without integrity, it nonetheless found that Mr Onodera was in breach of Statement of Principle 4 from 06 October 2014 to 18 November 2014.

Conclusion

This case serves as a warning of the standards expected by the PRA in relation to its reporting requirements, including where enforcement proceedings are brought to by an overseas regulator. It is rare to see the PRA imposing penalties against individuals and, including Mr Kamiya and Mr Onodera, the PRA has only imposed penalties against individuals in six cases since its inception in 2013. In the instant cases, Mr Kamiya was fined £22,700 and Mr Onodera was fined £14,945. Both individuals agreed to settle at an early stage of the PRA’s investigation and qualified for a 30% (stage 1) discount.