The Financial Services Agency will punish Sumitomo Mitsui Banking Corp. for abusing its position as a lender to force corporate borrowers to buy interest rate swaps, sources said Wednesday.

The FSA is expected to order the megabank to suspend business operations related to corporate borrowers and improve internal management to ensure it complies with the law, they said.

The order, expected later this week, will make SMBC the first bank to be punished by the FSA for violating the Antimonopoly Law by abusing its position with customers, they said.

In December, the Fair Trade Commission, the nation’s antimonopoly watchdog, ordered SMBC to stop taking advantage of its position as a lender to force borrowers to buy financial products.

Interest rate swaps allow borrowers to change variable interest rates into fixed ones, which can help them hedge against fluctuating interest rates.

After ordering SMBC to review more than 10,000 interest rate swaps sold since April 2001, the FSA found that SMBC threatened to disadvantage some of the borrowers who refused to buy them, the sources said.

The financial watchdog took issue with the fact that the illegal practice was found at multiple branches and deemed SMBC as lacking proper internal management to ensure legal compliance.

In a time of both misinformation and too much information, quality journalism is more crucial than ever.
By subscribing, you can help us get the story right.