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Japanese megabanks may get boost from proposed data-sharing rule changes

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Japanese megabanks may get boost from proposed data-sharing rule changes

Japanese megabanks may get a competitive boost in the nation’s brokerage market from a potential relaxation of data-sharing rules.

Lenders such as Mitsubishi UFJ Financial Group Inc., Mizuho Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. will be able to share customer information between banks and securities units, provided clients agree, under proposals being considered by the Financial Services Agency, or FSA. The ending of a nearly 30-year ban would help the megabanks offer a wider range of services to customers, such as deal advisory, equity and debt issuance, and potentially bolster efforts to poach clients from stand-alone brokerages.

“This is a really, really big move for them,” said Toyoki Sameshima, a senior analyst at SBI Securities Co. “They could unify some operations into one to deal with their customers and make faster decisions.”

The proposal comes as Japanese financial institutions look for new revenue streams and seek higher returns for clients’ money amid chronically low interest rates and competition from more agile fintech platforms. The risk, according to independent brokers, is that large and well-capitalized banks are able to offer funding and deal advisory services at lower fees. Clients’ interest in M&A or corporate financing deals could potentially be compromised if the firewall, modeled on the U.S. Glass-Steagall Act that did not allow commercial banks to engage in investment banking and securities trading, is abolished, they added.

“We’ll continue to raise voices to protect customers,” Shigeharu Suzuki, then-chairman of the Japan Securities Dealers Association said at a June 16 press conference.

In the June-end quarter, Mizuho and Sumitomo were the nation’s top two dealmakers in terms of M&A transactions involving Japanese companies, according to Maxus Corporate Advisory. Mizuho's primary brokerage unit is Mizuho Securities Co. Ltd. and Sumitomo's major securities subsidiary is SMBC Nikko Securities Inc.

The same ranking showed that Nomura Holdings Inc., Japan’s largest brokerage house, came in third, while Mitsubishi UFJ Morgan Stanley Securities Co. Ltd., a core securities unit of Mitsubishi UFJ Financial Group, or MUFG, ranked ninth.

Disadvantaged position

The brokerage industry in Japan has voiced concerns about the FSA’s proposal.

The Japan Securities Dealers Association said some of their customers from stand-alone brokerages may shift to banking groups for lower costs of funding and other service fees in M&A advisory or other corporate financing activities.

Some members of the FSA’s working group, which discussed the removal of the firewall, shared similar concerns. Yuri Sasaki, professor of Meiji Gakuin University’s economics department, said earlier the regulator should consider taking actions to maintain a level playing field for megabanks and stand-alone brokerages, without elaboration.

Michael Makdad, an analyst at Morningstar, said the move could put independent securities houses like Nomura and Daiwa Securities Group Inc. in a disadvantaged position. Nomura and Daiwa weren’t immediately available for comment.

MUFG and Mizuho told S&P Global Market Intelligence the move will enhance their competitiveness against foreign peers in Japan. When asked about the brokerages’ concern over megabanks’ pricing power, a spokesperson for MUFG shrugged off the concerns and said many clients do not rely on banks as their primary funding source. Sumitomo wasn’t immediately available for comment.

Opt-out clause

The FSA plans to create a panel of experts to study the proposal. Local media said the rule change could take place as early as 2022 and will only apply to “large corporate clients” first.

The regulator said clients will have the right to opt out of data sharing, which could limit the benefits for the megabanks. More than half of nearly 40 large companies surveyed by the FSA and Japan’s business lobby group Keidanren from September 2020 to March 2021 said that they will decide whether to opt out “on a case-by-case basis.”

The FSA said that it will require banking groups to spell out on their websites that they will not share customer information if clients object. The regulator added that it will discuss whether to extend the new system to smaller corporate clients.