TOKYO, June 14 (Reuters) - Japan's securities watchdog

recommended on Friday that the banking and securities units of

Mitsubishi UFJ Financial Group ( MUFG ) be penalised for

what it said was unauthorised sharing of client information.

The Securities and Exchange Surveillance Commission (SESC)

made the recommendation to the banking regulator, the Financial

Services Agency (FSA), which hands out such punishments in

Japan.

The recommendation, which was widely expected, followed the

SESC's investigation into MUFG's banking arm, MUFG Bank, and its

two brokerage ventures with Morgan Stanley ( MS ).

MUFG Bank also illegally offered preferential lending rates

to clients that did business with the group's two securities

brokerages, the SESC said.

Japan's "firewall" regulations prohibit banks and securities

companies in the same group from sharing customer data with one

another without the customer's consent.

The two brokerages were established in 2010, two years after

MUFG invested in Morgan Stanley ( MS ) at the height of the global

financial crisis in 2008. MUFG owned around 23% of Morgan

Stanley ( MS ) as of March 2024.

In 2022 the SESC indicted the brokerage unit of MUFG rival

Sumitomo Mitsui Financial Group ( SMFG ) on market manipulation

charges, after which the FSA ordered the unit to suspend the

offending business line and improve its compliance protocols.

(Reporting by Anton Bridge; Editing by David Goodman and

Muralikumar Anantharaman)