TOKYO - Japan's financial regulator on Friday ordered Sumitomo Mitsui Financial Group Inc SMFG to devise measures to improve compliance after the group's banking and securities arms violated the intra-group information firewall rules.
The Financial Services Agency's order to Japan's second largest financial group could hamper the banking industry's lobby for further deregulation of rules that restrict the sharing of client information within banking and securities units within the same financial group.
The securities and banking arms of SMFG were found to have shared confidential information with several corporate clients without their consent on potential deals, including tender offers and mergers.
Japan's top three financial groups, each of which have both banking and securities units, have been asking the government to relax the firewall rules, which were introduced in 1993 and modelled on the now defunct U.S. Glass Steagall Act to prevent abuse of banks' dominant bargaining position. They say the rules are outdated and hurt their global competitiveness.
But independent securities groups, such as Nomura Holdings Inc and Daiwa Securities Group Inc, argue that major economies with no firewall rules have stricter confidentiality regulation instead. Bank loans are a dominant method for corporate financing and the risk of banks abusing their position is greater in Japan.
The Securities and Exchange Surveillance Commission looked at a market manipulation case at SMFG Securities unit SMBC Nikko Securities, which was the subject of SMFG's Securities and Exchange Surveillance Commission.
SMBC Nikko and six former executives have been indicted for market manipulation charges over the purchase of 10 individual stocks on the market, allegedly to push up their prices and make sure that block trade deals don't fall through.
The unit was ordered on Friday to halt its block trade business for three months and improve compliance.
Before the scandal, SMBC Nikko had already suspended its block trade business, which had accounted for about 5 per cent of its annual trading revenue.