Administrative Actions Against RBS Securities Japan
The Securities and Exchange Surveillance Commission (SESC) conducted an inspection on RBS Securities Japan Limited (hereinafter referred to as “RBS Securities”), and found a violation of the Financial Instruments and Exchange Act (hereinafter referred to as ”FIEA”). On April 5, 2013, the SESC recommended to take administrative action against RBS Securities.
On the basis of the violation, the FSA today (April 12, 2013) issued the following administrative action against RBS Securities based on Article 51 of the FIEA.
1. Descriptions of the Recommendation
(1) Inappropriate conducts related to Yen LIBOR
From around middle of 2006 to early 2010, one trader at the Department of Short Term Market (at the time; hereinafter referred to as “Trader A”) and his colleagues at RBS Securities continuously approached Yen LIBOR submitters of Royal Bank of Scotland plc (hereinafter referred to as “RBS plc”) including through RBS plc’s traders and made requests to change Yen LIBOR submissions in order to affect Yen LIBOR in favor of the derivative transactions by Trader A and his colleagues.
The above conducts of Trader A and his colleagues could undermine the market integrity, considering that Yen LIBOR is a significantly important financial index that serves as a benchmark interest rate for various financial transactions. Therefore, the conducts are acknowledged to be seriously unjust and malicious and have a serious problem from the viewpoints of the public interest and protection of investors.
Furthermore, in light of the fact that RBS Securities has failed to identify these misconducts for a long period of time and has not taken any appropriate measures, it is acknowledged that its internal control system has serious deficiencies.
(2)Receipt of non-public customer information from the Parent Bank, etc.
In conjunction with RBS plc’s acquisition of ABN AMRO Bank N.V., the two banks’ Tokyo branches were consolidated at the end of June 2009.
Prior to the consolidation, Chief Operating Officer (hereinafter referred to as “COO”) of RBS Securities set the completion of the bank consolidation as his major objective, and involved himself in the banks’ business through chairing and attending the meetings to discuss the issues of the bank consolidation, together with employees of RBS plc’s Tokyo branch.
Under such circumstances, from May 2008 to February 2010, the COO on several occasions and the then Chief Executive Officer of RBS Securities on one occasion respectively, received non-public customer information of Tokyo branches of RBS plc and ABN AMRO Bank N.V.
In addition, the Compliance Department of RBS Securities did not initiate any factual investigations even after the faults of these issues were pointed out from the inside, which means that its internal control system has serious deficiencies.
The conducts mentioned above in (1) are acknowledged to be unjust and malicious and have a serious problem from the viewpoints of the public interest and the investor protection, since 〈i〉 these conducts are recognized to be made in the course of RBS Securities’ business operation and 〈ii〉 such conducts could undermine the market integrity. Furthermore, it is acknowledged that its internal control system has significant deficiencies. Therefore, it is acknowledged that the situation of RBS Securities’ business operation is a case where administrative action is “necessary and appropriate for the public interest or protection of investors, with regard to a Financial Instruments Business Operator’s business operation” as stipulated under Article 51 of the “FIEA”.
The conducts mentioned above in （2） are acknowledged to fall under the provision of Article 153-1(vii) of the Cabinet Office Ordinance on Financial Instruments Business based on Article 44-3(iv) of the FIEA.
2. Description of Administrative Actions
Business Improvement Order
(a) Clarify the responsibility of the management and staff regarding the above- mentioned violation.
(b) Secure strict compliance by all the management and staff members.
(c) Take preventive measures against recurrence of the above- mentioned violation, including measures to improve the control environment for governance and business operation.
(d) Submit a written report to the FSA on the implementation of the above measures by May 13, 2013, every three months thereafter, and at any times as needed in consideration of the implementation status.