Japan’s securities watchdog is seeking penalties on two regional banks for improperly selling structured bonds, a rare move that could send a signal to the broader industry about its sales practices.
The Securities and Exchange Surveillance Commission on Friday asked the Financial Services Agency to punish Chiba Bank and its brokerage subsidiary, as well as Musashino Bank. The agency said they sold these products without properly checking customers’ investment preference and experience, or explaining the risks involved.
It’s the first time in nearly two decades that the watchdog has issued such a recommendation in relation to structured bonds, an official said at a briefing. The move is a further step in an ongoing clampdown on structured securities, which offer higher returns than regular debt products but at significantly higher risk. It also suggests that authorities are getting more serious about cleaning up improper sales practices in the industry.
The ways in which financial firms handle retail investors have come under closer regulatory scrutiny as Prime Minister Fumio Kishida’s administration tries to spur growth by persuading Japan’s deposit-loving households to invest.
The FSA is following up on how brokerages sold ¥140 billion ($1 billion) worth of risky debt issued by Credit Suisse Group AG. Clients of Mitsubishi UFJ Financial Group Inc.’s brokerage arm took the biggest hit, suffering $700 million in losses after the Swiss bank’s government-led rescue.
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