The Financial Services Agency on Friday issued business improvement orders to three financial institutions — Chiba Bank and its subsidiary Chibagin Securities, as well as Musashino Bank — over sales of structured bonds, a risky financial product.
The agency judged that their practices, such as recommending purchases of structured bonds by highlighting high yields without confirming whether customers had investment experience, were problematic in terms of customer protection.
In August last year, the FSA announced a plan to examine how structured bonds were sold by financial institutions after a number of customer issues came to light linked to the high-risk, high-return financial product in which derivatives are embedded.
Regional lenders handling structured bonds, which generate high commission rates, accounted for nearly 80% of the total at the end of March last year. The share had slumped to over 30% as of the end of November following the FSA announcement.
Chibagin Securities sold structured bonds to customers introduced by Chiba Bank and Musashino Bank, including those with no investment experience, without giving them sufficient explanations about the risk of losses.
Chiba Bank and Musashino Bank, for their part, recommended purchases of structured bonds without confirming customers' investment experience or the condition of their assets.
The agency told the three to draw up business improvement plans and clarify management responsibilities.
The three released statements that they will work hard to prevent any recurrence of similar practices and regain people's trust.
Both Chiba Bank and Musashino Bank are listed on the Tokyo Stock Exchange's top-tier Prime section.