Citigroup Might be Penalized for Breaching Japanese Rules

October 03 00:00 2011

New York, October 3 ( – Regulators in Japan might penalize Citigroup (NYSE: C) because its Japanese retail banking unit failed to fully explain product risk to customers. This is the third instance since 2004 when Citigroup would be penalized for breaching rules.

Citigroup’s retail banking division might face penal action by the Financial Services Agency (FSA) such as temporary suspensions of operations at some outlets. It had faced similar suspensions in 2004 and 2009 for inadequate controls against money laundering.

Citigroup has been expanding its retail banking operations since the last ten years to tap wealth in a country where the financial assets of households are in the region of $19 trillion. It has come a long way since it started operations in Japan in 1902.

Citigroup shares dropped 3.7 percent to 1.951 yen at 2.27 p.m. in Tokyo trading. Both Citigroup and a spokesman at the Financial Services Agency declined to comment on any conversations between them. Online inspection of Citigroup’s Tokyo offices by the agency ended in July. Citibank Japan Ltd has had discussions with the agency regarding the reasons why the errors took place, who were the people responsible for them, and how compliance and internal controls can be improved.

The regulators pointed out that Citigroup probably did not have sufficient information about risk profiles, like the age and occupation of its customers that are needed to gauge the degree of risk that they should take.