Failure to Disclose Information and the Consequences
The Prudential Regulation Authority (“the PRA”) has a crucial role to play in the safety of the firms it regulates. It also contributes towards securing an appropriate degree of protection for policyholders, and has a range of powers under statute, such as the power to sanction those for failure to disclose important information.
A key example involved Mr Akira Kamiya, former Chair of Mitsubishi UFJ Securities International PLC (“MUS EMEA”) and Mr Takami Onodera, former Non-Executive Director of MUS EMEA, whereby the PRA went as far as to impose financial penalties on both the Chair and the Non-Executive Director.
The penalties were imposed in line with Section 66 of the Financial Services and Markets Act 2000. The two senior members of the company critically failed to disclose the fact that Mr Kamiya may be restricted from performing activities relating to US banking. This was due to an action brought by the New York Department of Financial Services (“the DFS”) against another group company, the Bank of Tokyo-Mitsubishi (“the BTMU”).
The PRA had the power to require that Mr Kamiya deal with the PRA in a cooperative and transparent manner. He was obliged to disclose to the PRA any information that he could reasonably expect to receive.
Mr Kamiya had held a senior position at the BTMU and the DFS focused its action on the BTMU’s conduct in New York. The PRA believed that Mr Kamiya was in breach as he was aware of the implications of his failure to disclosure from as early as 6 November 2014, but he had failed to inform the PRA. It took until 18 November 2014 for the PRA to finally receive notice of DFS’ actions.
The implications are often more serious than just a fine. After becoming aware of the failure to disclose, the DFS demanded that the BTMU and its associated companies prevent Mr Kamiya from involvement in its US banking business in the future, together with the production of a consent order penalising the BTMU with a fine.
Although Mr Onodera was not an executive at MUS EMEA, the PRA held that he too was in breach as he did not disclose information known to him pertaining to the DFS matter and the implications for Mr Kamiya to the individuals responsible for reporting to the PRA. This was due to the information being relevant to whether Mr Kamiya was fit and capable.
Understandably, Mr Onodera believed that he was in a position from which a conflict had arisen, between his duty of reporting matters and his duty of confidentiality to the DFS.
It is the PRA’s job to ensure that individuals have requisite integrity, reputation, competency, financial soundness, honesty and capability to manage firms to a high standard. In order to reach this conclusion, the PRA must be able to assess, with all knowledge, the propriety and fitness of individuals in senior positions at firms that are PRA-authorised. The PRA had a responsibility to assess whether the matter relating to the DFS had, or could have had, an impact on the propriety and fitness of Mr Kamiya. The breaches hindered the PRA in its considerations.
The PRA was unable to judge effectively the suitability of Mr Kamiya as Chair as it was not provided with all the relevant information. The PRA was also unable to put in place contingency plans prior to the public announcement made by the DFS. It was determined by the PRA that the imposition of financial penalties on Mr Onodera and Mr Kamiya promoted the soundness and safety of the firms it regulates.
This case reflects the importance of cooperative and transparent disclosure of relevant information to the PRA, which the PRA is likely to require.
The PRA became aware of the consent order presented by the DFS after the event and no notice was received directly from the DFS. Therefore, it should be noted that not all regulators share information concerning enforcement with each other as a matter of routine.
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This paper is intended to be a brief note for clients and other interested parties. The information is believed to be correct at the date of publication but should not be relied upon as a substitute for professional advice. Please speak to a member of our team.