Fine Amount: $9,800,000
Primary Violation: Failure to comply with substituted compliance conditions for security-based swap dealer requirements, leading to violations of capital recordkeeping, financial reporting, compliance, internal supervision, and internal risk management rules
Regulator: U.S. Securities and Exchange Commission (SEC)
Fine Date: 6-Aug-25
Overview
The U.S. Securities and Exchange Commission (SEC) instituted administrative and cease-and-desist proceedings against MUFG Securities EMEA plc, a UK-based security-based swap dealer (SBSD) registered with the SEC, for violations of the Securities Exchange Act of 1934.
The firm was fined $9,800,000 for failing to satisfy conditions under a substituted compliance order while operating in the U.S. security-based swap market from November 1, 2021, to October 4, 2024. This resulted in non-compliance with direct Exchange Act requirements related to capital recordkeeping, financial reporting, compliance, internal supervision, and internal risk management, as well as making untrue statements in its registration application.
MUFG Securities EMEA, regulated by the UK's Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA), registered conditionally as an SBSD with the SEC on November 1, 2021, and elected substituted compliance under the SEC's UK Entities Order.
Substituted compliance allows non-U.S. SBSDs to meet certain Exchange Act obligations by adhering to comparable foreign rules plus SEC-imposed conditions, rather than direct compliance. However, the firm failed to meet key conditions, such as maintaining and recording quarterly net liquid assets levels starting January 1, 2022, and timely providing UK compliance reports to the SEC within 15 days of submission to its management body. These failures spanned nearly three years and stemmed from inadequate policies and procedures to ensure ongoing compliance, despite representations in its registration application that such measures were in place.
The violations included not computing or recording net capital under U.S. rules, filing simplified rather than complete FOCUS reports, omitting required public financial disclosures, and neglecting annual compliance reports addressing non-compliance issues. Additionally, the firm lacked supervisory systems to prevent these lapses and did not establish robust risk management for substituted compliance risks.
In its Form SBSE-A applications filed on October 29, 2021, and February 16, 2022, MUFG Securities EMEA inaccurately certified that it had policies, procedures, and controls to meet all SEC UK Entities Order conditions.
Starting January 1, 2022, MUFG was required to maintain specific levels of "net liquid assets" (a measure of readily available funds after deductions, as defined in the order) and to make and preserve quarterly records proving compliance. Instead, the firm never performed these calculations or created the records on time, claiming unawareness of the ongoing obligation after registration. This meant it couldn't use substituted compliance and had to follow U.S. rules directly.
Failures occurred throughout the Relevant Period (November 1, 2021, to October 4, 2024). SEC staff requested records on November 1, 2023; the firm admitted non-compliance on December 14, 2023; provided an inaccurate record on January 9, 2024; and created post hoc records for 11 quarter-ends on August 21, 2024, after an enforcement investigation began on July 29, 2024.
For substituted compliance on SBSD compliance rules (e.g., annual reports on program effectiveness and non-compliance fixes), the SEC UK Entities Order required sending all UK compliance reports to the SEC within 15 days of submission to the firm's management body. The firm missed this for multiple years, providing reports late or not at all, and omitted required content like descriptions of improvement areas or material issues (e.g., an internal audit highlighting "significant improvement" needed in regulatory reporting).
No 2021 reports were sent; 2022 reports were bulk-submitted on November 8, 2023 (11-21 months late); 2023 reports on April 12, 2024 (4-14 months late); and 2024 Q1-Q3 reports on October 4, 2024 (most up to 8 months late, though two met the deadline). Annual U.S.-style reports were due March 31, 2023, and March 30, 2024, but were incomplete.
MUFG failed to submit simplified (UK-based) FOCUS reports instead of complete ones with U.S. net capital computations; not posting required public disclosures like financial condition statements or half-year unaudited reports on its website; and not filing U.S.-GAAP annual reports with net capital schedules, segregation exemption reports, or U.S.-audited accountant reports—instead sending some UK reports late after staff prompts.
No 2021 UK audited reports were sent; 2022 reports sent October 9, 2024 (over 15 months late); 2023 reports sent July 18, 2024 (18 days late). Public disclosures were never made, and segregation reports were omitted for all fiscal years in the period.
In its SBSD registration forms (Form SBSE-A), MUFG falsely certified having policies, procedures, and controls to meet all SEC UK Entities Order conditions and Exchange Act provisions. It relied on unverified oral attestations from staff without checking implementation or ensuring ongoing compliance. Statements claimed full compliance readiness, but policies were incomplete (e.g., no ongoing monitoring).
No verification process detected gaps.