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Japan Press Service Co., Ltd. is the only news agency providing information of progressive, democratic movements in Japan

SMBC ordered to suspend selling derivatives

The Financial Services Agency on April 27 ordered Sumitomo Mitsui Banking Corporation to suspend selling derivatives for 6 months from May 15 on charges of abusing its superior position to force its borrower small- and medium-sized enterprises to purchase high-risk financial derivatives. SMBC is also barred from setting up corporate sales departments anywhere for a year.

It is the first time that a financial institution received an administrative order to suspend its operations for its "abuse of its superior position." The FSA also ordered SMBC to clarify who among the executives were responsible and ordered the bank to take steps to improve management by establishing a compliance system.

During FY 2001-2004, SMBC urged its borrowers to buy high-risk high interest rate swaps if they want to continue to get bank loans. Sixty-eight similar cases took place at 51 out of 194 SMBC offices. Adequate explanations were not given in 180 other cases of sale.

The FSA pointed out that SMBC has put earnings before compliance with laws.

Japanese Communist Party member of the House of Councilors Daimon Mikishi, who took up this question in the Diet, said that the bank should punish those responsible and take steps to relieve the victims.

The underlying cause of SMBC's hard sell of speculative derivatives to weak borrowers is the Koizumi Cabinet's policy of urging major banks to promptly dispose of their bad loans. The government has the responsibility to investigate about similar unfair trading practices in other major banks and instruct that malpractices be corrected.
- Akahata, April 28, 2006