(Bloomberg) -- Mitsubishi UFJ Financial Group Inc. repeatedly violated its clients’ confidentiality by breaking firewalls among the bank’s units, according to Japan’s securities watchdog. 

MUFG Bank Ltd., Morgan Stanley MUFG Securities Co. and Mitsubishi UFJ Morgan Stanley Securities Co. exchanged information at least 10 times in order to win business, the Securities and Exchange Surveillance Commission said, calling for the group to be penalized.  

Commercial and investment banking arms of the same financial group are forbidden from sharing client data, in part to keep lenders from abusing their bargaining positions. Japanese banks have for years lobbied to ease the firewalls, saying they are obstacles to merger advisory and business succession planning. 

The “three firms repeatedly exchanged non-public client information knowing that the clients had refused to share their information with other group firms, and some of the information contained material information that would impact investment decisions,” the agency said in a statement.  

In order to boost group-wide revenue, the performance of employees at MUFG Bank was in part measured by how much business they brought to MUMSS, the SESC said. 

“The MUFG Group companies have taken the contents of this notice very seriously,” MUFG said in a statement. “We sincerely apologize for any inconvenience and concern this may cause to our customers and other concerned parties.”

Morgan Stanley MUFG Securities, in which the US lender has a 51% voting interest, said in a separate statement that it will strengthen its internal control and takes the matter very seriously.

Bond Underwriting 

The probe is the latest financial scandal to surface in Japan and is a setback to the nation’s largest lender after clients last year lost more than $700 million on Credit Suisse’s riskiest bonds purchased through its brokerage venture with Morgan Stanley. In 2022, rival Sumitomo Mitsui Financial Group Inc. and its securities unit were penalized after the Financial Services Agency found that the latter had engaged in stock market manipulation.

MUMSS has already lost business. Aeon Co., Kanagawa Prefecture and Japan Housing Finance Agency decided to drop the unit from underwriting bond deals, according to the issuers.

This follows a well-established pattern. SMBC Nikko Securities Inc., the brokerage unit of SMBC, also lost bond underwriting business in 2022, following allegations of market manipulation.

The probe may weigh on the two JVs, which have targeted replacing Nomura Holdings Inc. as Japan’s top broker. Those two houses recently merged their Japan equity sales and research for institutional investors to bolster a relationship that dates back to around the time of the global financial crisis.

Morgan Stanley leads the league table for advising on Japan-related mergers so far this year. It ended the previous two years in third place.


--With assistance from Ayai Tomisawa and Takahiko Hyuga.

(Updates with Morgan Stanley MUFG Securities comment in 7th paragraph.)

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