Japanese regulator the Financial Services Agency (FSA) has ordered Citi to restructure its internal control systems and risk management technology following breaches of Japanese securities law.
The administrative action follows an inspection by the Securities and Exchange Surveillance Commission (SESC), a unit of the FSA, which found that the bank had violated Japan’s Financial Instruments and Exchange Act.
Citi has been ordered to suspend the solicitation of investment and risk products, including foreign currency deposits, mutual fund products and structured deposits, to its retail banking customers from 10 January 2012 to 9 February 2012.
The FSA has also introduced a similar suspension of Citi derivatives products related to Tokyo Interbank Offered Rate (TIBOR) and London Interbank Offered Rate (LIBOR) reference rates, after the watchdog found that senior Citi employees attempted to influence interbank lending rates using “untruthful” reporting and inappropriate approaches to personnel in charge of such rates.
UBS will also be suspended from trading derivatives tied to Libor and Tibor for seven days from Jan. 10.
The regulator also ordered Citi to submit a business improvement plan by the end of January, detailing measures to correct the issues identified by the FSA, including “inappropriate” solicitation of customers and sales of investment products. Citi also issued an apology to its customers, in which the firm promised to abide by the administrative action and re-affirmed its commitment to the Japanese market.
The measures in the Citi improvement plan will include the reconstitution of the firm’s Japan board of directors, the addition of a senior Japanese banker as the new CEO of Citibank Japan, and the addition of a new Japanese non-executive chairman together with independent Japanese directors to the board. Darren Buckley, the current representative director, president and CEO of Citibank Japan, will resign from all positions from 10 January 2012. He will be replaced by Peter Eliot, who currently serves as Citi’s country head in Thailand, until a permanent replacement is announced.
Meanwhile, the Australian Securities and Investments Commission (ASIC) is currently pursuing legal action against two individuals, Elisa Rietbergen, formerly a relationship services associate with J.P. Morgan Chase Bank, and Joseph Levi, who both pleaded guilty to an insider trading charge.
The charges brought by ASIC relate to inside information concerning the acquisition of Valad Property Group by affiliates of the Blackstone Group announced on the Australian Securities Exchange on 29 Aril 2011. ASIC alleges that Rietbergen, having gained access to the inside information while with J.P. Morgan, communicated the inside information to Levi, who then bought Valad securities.
The charges follow insider trading charges brought by ASIC against John Gay, former chairman of Gunns, on 13 December 2011 and Nicholas Glynatsis, a tax consultant, on 15 December 2011. Since 1 January 2009, ASIC has finalised 14 successful prosecutions for criminal insider trading and market manipulation, with all but two of the offenders being sentenced to terms of imprisonment and one civil penalty action for market manipulation.