Bloomberg News

Citigroup Said to Face Penalty on Japan Regulatory Breach

October 03, 2011

(Updates with Citi’s Japan operation from third paragraph.)

Oct. 3 (Bloomberg) -- Citigroup Inc. may be penalized by regulators in Japan for the third time since 2004 after its Japanese retail banking unit possibly breached rules by failing to fully explain product risk to customers, two people familiar with the situation said.

The penalties imposed on Citigroup Japan’s retail banking division by the Financial Services Agency may include temporary suspensions of operations at some outlets, said the people, who declined to be identified as the discussion is private.

Citigroup, which started its Japan business in 1902, has been expanding its retail banking operations over the past decade to tap wealth in a country where households have 1,490 trillion yen ($19 trillion) of financial assets. The latest investigation follows business suspensions in 2009 and 2004 for inadequate controls against money laundering.

Shares of Citigroup fell 3.7 percent to 1,951 yen at 2:27 p.m. in Tokyo trading. The New York-based bank declined in an e- mailed statement to comment on its conversations with regulators. Toshiharu Mashita, a spokesman at the Financial Services Agency, declined to comment.

The agency ended its onsite inspection of the U.S. bank’s Tokyo offices in July, the people said. Citibank Japan Ltd. has been discussing with the agency why the errors occurred, who may be responsible for them, and how to improve its compliance and internal controls, the people said.

Insufficient Information

Citigroup possibly had insufficient information related to risk profiles, such as the age and occupation of its customers, needed to measure the degree of risk they should take, the regulators pointed out, according to the people.

The U.S. bank may reshuffle management after finding alleged problems with its disclosures in selling financial products, the Wall Street Journal reported today, citing unnamed people familiar with the matter.

Citibank Japan had 3.49 trillion yen of deposits and 246.2 billion yen of loans outstanding as of June 30. It has 32 branches and offices and 1,780 employees after opening or renewing existing outlets in Tokyo, Nagoya, Osaka and Kobe since April 2010.

In 2009, Citigroup was ordered by the regulator to suspend marketing of banking services to individuals for a month, after failing to put in place adequate internal controls to detect and monitor suspicious transactions. In 2004, the company was ordered to close its private banking operations in the country.

--With assistance from Shingo Kawamoto in Tokyo. Editors: Tomoko Yamazaki, Russell Ward

To contact the reporter on this story: Takahiko Hyuga in Tokyo at

To contact the editor responsible for this story: Russell Ward at

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