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Risks relating to reforms of London Interbank Offered Rate and other interest rate benchmarks
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We have various transactions, including derivatives, loans, bonds, and securitized products, that reference or
referenced London Interbank Offered Rate, or LIBOR, and other interest rate benchmarks. ICE Benchmark Administration Limited, the LIBOR administrator, ceased publication of the one-week and two-month U.S. dollar LIBOR settings and all non-U.S. dollar LIBOR settings on a representative basis after December 31, 2021 and publication of all other U.S. dollar LIBOR settings after June 30, 2023.
In preparation for the discontinuation of the publication of LIBOR, we have been taking measures to deal with the reform of LIBOR and
other interest rate benchmarks and the transition to alternative reference rates, and our transition away from LIBOR and related benchmarks with respect to transactions referencing LIBOR settings which ceased to be published after December 31,
2021 have been mostly completed, with a strategy in place for the remainder of such transactions. With respect to transactions referencing U.S. dollar LIBOR settings and which ceased to be published after June 30, 2023, although we have made
substantial progress on our transition away from such U.S. dollar LIBOR settings and related benchmarks, we continue to take measures to complete such transition, while relying on legislative solutions for existing contracts that cannot feasibly be
transitioned away from U.S. dollar LIBOR.
Such transition from LIBOR and other interest rate benchmarks to alternative reference rates is
complex and entails uncertainty, including as to the economic characteristics and performance, market acceptance, and accounting and regulatory treatment of such alternative reference rates and the transition to such rates, and may have various
adverse impacts on our business, financial position and operating results. In particular, among other things,
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such transition may adversely affect the price, liquidity, profitability, and tradability of a wide range of
financial instruments, such as loans and derivatives, included in our financial assets and liabilities that reference LIBOR and other interest rate benchmarks; |
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we may be unable to modify contracts with our counterparties to replace the reference rate for existing contracts
based on or linked to LIBOR and other interest rate benchmarks with alternative reference rates as planned; |
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such transition may result in disputes with customers and counterparties concerning the interpretation of
affected contracts or economic adjustments to the alternative reference rate adopted in connection with the reform of LIBOR and other interest rate benchmarks and the transition to alternative reference rates, or disputes concerning inappropriate
trade practices or abuse of a dominant bargaining position in transactions with customers; |
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such transition may require us to respond to regulatory authorities in connection with the reform of LIBOR and
other interest rate benchmarks and the transition to alternative reference rates; and |
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our operational and risk management systems may not be fully effective to deal with the reform of LIBOR and other
interest rate benchmarks and the transition to alternative reference rates. |
15. |
Risks of being deemed to have engaged in inappropriate or illegal practices or other conduct and, as a result,
becoming subject to regulatory actions |
We conduct our business subject to laws, regulations, rules, policies and
voluntary codes of practice in Japan and other markets where we operate. We are subject to various regulatory inquiries or investigations from time to time in connection with various aspects of our business and operations. Our compliance risk
management systems and programs, which are continually enhanced, may not be fully effective in preventing all violations of laws, regulations and rules.
If we are deemed not compliant with applicable laws, regulations or rules, including those relating to money laundering, economic sanctions,
bribery, corruption, financial crimes, or other inappropriate or illegal transactions, if our conduct is deemed to constitute unfair or inappropriate business practices, or if we are deemed to have failed to meet market or industry rules or
standards, customer protection requirements, or corporate behavior expectations, we may become subject to penalties, fines, public reprimands, reputational damage, issuance of business improvement, suspension or other administrative orders, or
withdrawal of authorization to operate. These consequences may result in loss of customer or market confidence in us or otherwise may adversely affect our financial condition and results of operations. Our ability to obtain regulatory approvals for
future strategic initiatives may also be adversely affected.
In February 2019, MUFG Bank entered into a consent order with the U.S.
Office of the Comptroller of the Currency, or OCC, relating to deficiencies identified by the OCC in the Bank Secrecy Act/Anti-Money Laundering compliance program of MUFG Banks U.S. branches in New York, Los Angeles, and Chicago. The consent
order requires MUFG Bank and its U.S. branches to implement various remedial measures to address the deficiencies found in the OCC examination, including a comprehensive action plan satisfactory to the OCC, implementation of measures to ensure
effective compliance management and qualified staffing, the adoption of comprehensive Bank Secrecy Act/Anti-Money Laundering risk assessment policies and procedures, and other remedial actions. MUFG Bank undertook necessary actions relating to the
consent order, and the OCC terminated the consent order pertaining to MUFG Banks compliance with Bank Secrecy Act/Anti-Money Laundering program requirements in December 2022.
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