The Financial Supervisory Agency slapped a range of punitive measures Friday on the securities unit of BNP Paribas, a large French bank, for helping three of its Japanese corporate clients hide latent losses on derivatives products it sold them, the FSA said.
The punitive measures against BNP Paribas (Japan) Ltd. include a one-week ban on conducting equities derivatives transactions, and a three-day ban on accepting buy and sell orders for shares on behalf of customers, said the FSA, one of Japan’s two financial industry watchdogs.
The FSA took the action in line with the findings of the Securities and Exchange Surveillance Commission, which recommended that the French brokerage be punished for recommending transactions that could help the three hide losses.
The SESC said the Tokyo-based brokerage contravened a clause of the Securities and Exchange Law that bars financial institutions from inviting clients to conclude certain contracts by promising to give extraordinary benefits.
With the imposition of the punitive steps, BNP Paribas (Japan) becomes the second financial institution to be punished for selling financial products to help clients hide losses, following the punishment of the Tokyo unit of Deutsche Securities Ltd., an arm of Deutsche Bank, in May.
The FSA also ordered BNP Paribas (Japan) to enhance its internal control regime to prevent illicit trades, and to live up to Japanese law, the agency said.
The brokerage sold the three “structured bonds” — a type of derivative whose value is linked to the Nikkei stock average.
After the bonds lost most of their value, the brokerage invited the three — in a period between September 1997 and July 1998 — to conclude contracts allowing them to extend the dates for redeeming the derivatives, to help them avoid reporting the latent losses on their financial statements.