Japan bank draws scrutiny for switch to Trump regulator

Bloomberg

Japan’s biggest bank has been accused by New York officials of dodging tough oversight by swapping its state license for a federal one, putting itself under a US agency on the front lines of President Donald Trump’s push to ease financial rules.
The November move by Mitsubishi UFJ Financial Group Inc. (MUFG) is now drawing scrutiny from a key US Senate investigative panel known for its post-crisis probes into Goldman Sachs Group Inc. and other financial firms, said a person with knowledge of the matter.
The Senate’s Permanent Subcommittee on Investigations has been gathering documents about how MUFG dropped its New York license and won approval to instead be supervised by the Office of the Comptroller of the Currency, said the person who asked not to be named because the review isn’t public.
The Tokyo-based bank’s effort to change regulators has generated controversy because it happened unusually fast last year as the New York Department of Financial Services was preparing to reprimand the lender.
MUFG was cleared by the OCC to come under its oversight just eight days after applying. Such requests are uncommon, and a similar one from UBS Group AG took several months to win OCC approval in 2017. After getting the OCC’s sign-off, MUFG then sued New York’s regulator to prevent it from pursuing any further enforcement actions.
Maria Vullo, the state’s superintendent of financial services, responded in a January court filing by calling the license conversion “contrary to the law, invalid and not effective.”
She has asked a federal judge in Manhattan to let her agency fine the Japanese bank for allegedly making false statements about its efforts to improve sanctions controls and for failing to conduct due diligence of financial transactions in cities that border North Korea.
Emily Benavides, a spokeswoman for the Senate panel’s chairman, Ohio Republican Rob Portman, declined to comment. Spokesmen for MUFG, the New York Department of Financial Services and the OCC also declined to comment.
MUFG’s decision to shift watchdogs comes as federal regulators run by Trump appointees look to relax oversight of banks, a long-standing goal of Republicans in Congress. Yet the probe by the Senate panel indicates there remains some desire to keep scrutinizing the industry a decade after the financial crisis.
How the Senate review plays out will likely have implications for other global lenders that have considered pursuing an escape from New York’s financial services regulator, which has hit firms with billions of dollars in fines in recent years.
“Other banks are looking at charter conversions with an eye to business fundamentals,” said Karen Shaw Petrou, a managing partner at Federal Financial Analytics in Washington. MUFG’s decision was a “classic case of charter arbitrage,” she added.