Japan FSA Sanctions BNP Paribas Again
BNP Paribas Japan has been ordered to suspend all business in its Equities & Commodity Derivatives Division from November 2 to November 16. It’s also been ordered to improve its internal audit, inspections and trade approval process.
The issue stemmed from a swap transaction back in June 2008 where the FSA found that BNP Paribas Japan “business management control system and internal control system had serious defects…” As part of full, complete and fair disclosure BNP failed to advise its client to disclose the terms of the swap to the clients’ investors. In fact, BNP asked the client to withhold information about contract to realize a better price for BNP.
Internal checks on the transaction were also found to be in conflict as the person in charge was also part of the team writing the swap. Additionally, compliance and the respective top-line business did not perform satisfactory checks to determine if the I’s were dotted and the T’s crossed. As such the FSA required that BNP implement fixes and report back in due course that these improvements had been made.
More recently, the Securities and Exchange Surveillance Commission (SESC) performed an inspection of the same branch that was found to have “serious defects” to review the reports and the improvements it was charged with making. The SESC determined the reports to be incomplete and untruthful, without sufficient follow-up and verification.
There was also found to be an incident of price fixing by a trader in the same department charged with the poor internal practices. On November 5 during the closing auction of the afternoon session a large buy order was sent for a Japanese listed name using limit orders just before the close where the price was just 1 yen below daily maximum price limit. As a result the stock price was fixed in special bid quotes at the daily maximum price limit.
It has been a tough 12 months or so for financial markets globally where less staff are being asked to do more but I think the cost to BNP of such oversight will be more than a few head count.
The press release from the Japan FSA can be found here