(October 16, 2012) — The Japanese financial regulator has suspended a couple of specialist activities by one of France’s largest banks due to violation of proper conduct when handling pension assets.
The Financial Services Authority (FSA) said it had found “serious violations of laws and regulations” pertaining to the business Societe Generale Private Banking Japan (SGPBJ) ran serving pension fund clients.
The FSA said: “In addition, regarding the governance system, the compliance system, and the customer protection management system, serious problems that may impede sound and appropriate business operations were recognized.”
SGPBJ was subject to an on-site investigation in September, during which time a number of failings were found, the FSA said in its report.
The report follows a high-profile scandal in the country earlier this year as fund manager AIJ was unable to account for $1.4 billion in pension assets following decades of losses.
The main problems attributed to SGPBJ surrounded the investment of pension assets by the bank in to unlisted stocks and the due diligence process therein.
The FSA said SGPBJ had not developed due diligence and monitoring systems required by pension trustees in Japan and it had overlooked this omission for a long time.
“The company failed to clarify the authority over and the method of screening the acceptance of money, and allocated the responsibility for conducting due diligence examination regarding the scope of partnerships’ investment targets and general partners’ asset investment experience and capabilities entirely to sales personnel instead of fund managers, who are responsible for asset investment,” the FSA said in the report. “In addition, the company did not have internal control divisions, such as the legal affairs division and the compliance division, conduct verification.”
The FSA also said that fund managers were buying stakes in companies that were potentially unsuitable for pension fund investors and there was no action taken to reverse the decisions or resolve the problems.
The FSA concluded: “The company has not developed management systems that pension asset trustees undertaking specified management are required to develop… In addition, checks on the appropriateness of settlors who wish to invest in unlisted stocks were inadequate. Moreover, the company has not allocated personnel to the right positions in light of professional expertise concerning trust-related laws and regulations.”
As a result of these findings, SGPBJ has been forbidden from conducting business in this section of the Japanese financial markets. A spokesman for SGPBJ said the private banking arm could not carry out any activity to seek new business until mid-November and its pensions trust activity had been suspended until January 22, 2013. The spokesman said existing clients’ service would not be affected by the suspension. The FSA said the bank has also been required to “drastically restructure the compliance system and the customer protection management system, including the review of the management systems regarding the pension trust business and the private banking business and steady implementation of revisions”.