Japan launches probe into regional banks' internal audit

[TOKYO] Japan's financial watchdog has launched onsite inspections of the country's regional banks to see if their internal auditing is functioning properly, a government official with direct knowledge of the matter said on Wednesday.

The Financial Services Agency (FSA) is planning to widen the scope of its onsite inspections on regional lenders gradually, the source said, without specifying which banks were being inspected.

The move comes after the FSA last month issued business improvement orders against a regional lender following revelations it had been engaged in improper conduct, such as charging customers illicit commissions on top of interest on loans due to lack of adequate internal auditing.

The regulators are urging regional banks, whose profits are being squeezed by the Bank of Japan's negative interest rate policy, to strengthen their internal auditing function so that it can put a proper check on management, the source said.

An FSA spokesman declined to comment on the matter. 

REUTERS