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Financial Penalty for Failure to Disclose Information

Posted on 07 November 2018

Financial Penalty for Failure to Disclose Information

The PRA has issued its Final Notice imposing a financial penalty of £22,700 on Mr Akira Kamiya, former Chair of Mitsubishi UFJ Securities International Plc ("MUS EMEA"), and £14,945 on Mr Takami Onodera, former Non-Executive Director of MUS EMEA pursuant to section 66 of the Financial Services and Markets Act 2000 ("FSMA"). Both received a stage 1 discount under the PRA's approach to enforcement due to agreeing to settle at an early stage.

The penalty on both Mr Kamiya and Mr Onodera arose from failure to disclose the possibility that Mr Kamiya would be restricted from conducting US banking activities as a result of action by the New York Department of Financial Services ("DFS") against another group company The Bank of Tokyo-Mitsubishi ("BTMU").

Mr Kamiya's role as a CF2 (non-executive and Chair) at MUS EMEA required him to comply with Statement of Principle 4 which provided that he 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.  On 18 November 2014, DFS published a consent order fining BTMU and demanding that it and its associated companies prevent Mr Kamiya from conducting any of its US banking business in the future. The DFS action focused on matters related to BTMU's conduct in New York where Mr Kamiya held a former senior BTMU position. The PRA considered that Mr Kamiya breached Statement of Principle 4 as he was aware of the potential implications for him from 6 November 2014 but nevertheless failed to inform the PRA. The PRA first received notice of the DFS action and its implications for Mr Kamiya on 18 November 2014 following the DFS' public announcement.

Although Mr Onodera was not one of the executives at MUS EMEA that bore responsibility of making notifications to the PRA, the PRA still held him in breach of Statement of Principle 4 due to failing to disclose appropriately to those responsible for reporting to the PRA. The failure was because the information known to him in respect of the DFS matter and potential implications for Mr Kamiya was relevant to his Mr Kamiya's fitness and propriety, and governance discussions with the PRA in 2014 relevant to the plans and timings of Mr Kamiya's retirement and succession.

The PRA commented that it did not find Mr Onodera acted dishonestly or without integrity. It also accepted that Mr Onodera believed he was in a difficult position arising from the direct conflict of interest that he believed existed between his duties of confidentiality to the DFS and the duty to report matters appropriate under Principle 4.

In effect, these breaches hindered the PRA in its consideration of whether the DFS matter had, or could have had an impact on Mr Kamiya's fitness and propriety. 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 individuals have the requisite honesty, integrity and reputation, competence and capability, and financial soundness to manage firms in a prudentially sound manner. Without being informed of all the relevant information, the PRA was unable to make an effective judgement as to the ongoing suitability of Mr Kamiya remaining as Chair as well as to make any necessary contingency plans ahead of the public announcement by the DFS.

The PRA considered that the imposition of a financial penalty on both Mr Kamiya and Mr Onodera supported its general objective of promoting safety and soundness of the firms that it regulates. The action is significant in highlighting the importance of open and cooperative disclosure of appropriate information of which the PRA would reasonably expect notice.

Comment

This case demonstrates the importance that the PRA places on being kept promptly informed about matters which can impact on the fitness and propriety of bank senior management.  Mr Kamiya kept the PRA in the dark about the DFS action for only 12 days, but the PRA was clear that this delay could have been detrimental to PRA's planning for the outcome.

The PRA clearly had some (but limited) sympathy for Mr Onodera who understood that he owed a duty of confidentiality to the DFS.  However, the PRA made clear that individuals must take account of their own regulatory obligations owed to the PRA (or FCA). Mr Onodera had also been told by the group parent, that they would make all necessary regulatory notifications including to the PRA. The PRA, in taking action has made clear that management of PRA regulated firms cannot simply rely on the promises of other group companies to make the necessary notifications. The obligation is on the PRA regulated entity to ensure that notification is provided where necessary. Whilst Mr Onodera owed no direct duty to disclose to the PRA, he had an obligation to raise the matter internally at MUS EMEA so that the firm could properly consider making a notification to the PRA. 

Firms and individuals who deal with multiple regulators should take steps to ensure that "carve-outs" are obtained from confidentiality obligations in order to ensure that they can comply with regulatory obligations owed to other regulators. Where this is not possible, firms and individuals need to seek urgent legal advice about their own positions. 

Readers may be surprised that the PRA only became aware of the DFS consent order after the event and did not receive direct notice from the DFS as part of cooperation between regulators.  However, whilst regulators do share some information with other regulators, one should not assume that information about enforcement is shared as a matter of routine. Regulators owe their own duties of confidentiality to firms and individuals and they themselves can only share information if there is an appropriate information gateway.

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