Japan regulator steps in to fix Mizuho's computer flaws

FILE PHOTO: A pedestrian is reflected in a sign showing the logo of Japan's Mizuho Financial Group Inc outside the bank's headquarters in Tokyo, Japan, May 15, 2015. REUTERS/Yuya Shino

TOKYO (Reuters) - Japan's banking regulator will take a role in overseeing computer systems at Mizuho Financial Group's retail banking arm after glitches that exposed failings at the country's third-largest lender despite $3.6 billion in upgrades.

The Financial Services Agency's unusual move reflects the deep regulatory concern over deep-rooted technical problems at Mizuho Bank, which the FSA ordered to improve its business.

"I can't think of any other cases where the FSA has become so closely involved in inspections of a (banks') computer system," said Brian Waterhouse, senior bank analyst of Windamee Research, who publishes on the Smartkarma platform.

"This shows how much the FSA is concerned about the problems," Waterhouse added.

The FSA will communicate with Mizuho Bank on the running of its computers, officials said at a briefing, although the regulator stopped short of taking on direct management of the bank's systems after a series of technical meltdowns this year.

These included widespread ATM outages, causing frustration among customers and undermining confidence in Mizuho Bank.

"Mizuho will submit reports with what's needed to be done to us and we will point out if changes are needed." an FSA official told a media briefing, adding that there would be ongoing conversations with the bank.

The problems are all the more notable given that Mizuho spent more than $3.6 billion to overhaul its systems in 2019 following two large-scale breakdowns in 2002 and 2011.

A third-party report commissioned by the bank found its corporate culture was to blame for its tech system failures, creating an atmosphere where managers are reluctant to express opinions and unable to respond well to crises.

Mizuho said in a statement it took the regulator's punishment seriously and reassess the need for scheduled system upgrades and updates.

"Our top priority is the stable operation of our IT system, and we will do all in our power to ensure upgrades and updates proceed steadily and securely," it said.

"All of our employees will continue to work together towards this goal."

The regulator's next actions will depend on the outcome of a report from the bank, which is due by Oct. 29.

(Reporting by Yuki Nitta and Junko Fujita; Writing by Ritsuko Ando and David Dolan; Editing by Stephen Coates and Alexander Smith)

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