• Bloomberg


Citigroup Inc. may be penalized by regulators for the third time since 2004 after a local retail banking unit possibly breached rules by failing to fully explain product risks to customers, two sources 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 sources, who declined to be identified as the discussions are 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 quadrillion in financial assets. The latest investigation follows business suspensions in 2009 and 2004 for inadequate controls against money-laundering.

The New York-based bank declined in an emailed statement to comment on its conversations with regulators. Toshiharu Mashita, a spokesman at the Financial Services Agency, declined comment.

The agency ended its onsite inspection of the U.S. bank’s Tokyo offices in July, the sources 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, they added.

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 sources.

The U.S. bank may reshuffle management after finding alleged problems with its disclosures in selling financial products, the Wall Street Journal reported Monday, citing other unnamed sources.

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