5

Financial Services Agency
Newsletter

Access
FSA

2022
May

Monthlymagazine

No.225

Provisional
Translation

Contents
Conferences (P1 -)P1 Address by Minister of State for Financial Services SUZUKI Shunichi at the 97th annual
meeting of the Trust Companies Association of Japan
Policy Commentary Corner (P9 -)P3 Publication of "Toward Enhancement of Banks' Disclosure of Allowancefor Loan Losses"
MATSUMOTO Ai, Deputy Director
SHIRAI Shohei, Deputy Director
Regional Financial Planning Office, Banking Business Division II, Supervision Bureau

P6 Publication of a report by the "Expert Panel on Water Disaster Insurance Premium Ratein Fire Insurance"
YANO Masataka, Insurance Actuary, Insurance Product Office,IZUMI Shota, Subsection Chief, Property and Casualty Insurance Product Subsections II and III
TARUI Junpei, Subsection Member, Property and Insurance Casualty Insurance Product Subsection
III Insurance Business Division, Supervision Bureau

P9 Summary of Results of the 3rd Survey on the Use of LIBORKAWANA Shiro, Deputy Director
ISHII Yoshiyuki, Deputy Director
SUZUKI Kazuo, Deputy Director
GOMAMOTO Tetsuya, Section Chief
CHIBA Yuki, Associate
Banking Business Division I, Supervision Bureau

Notices (P13 -)P12 Message to the Market (Explanation of recommendation based on financial instruments
business operator inspection results)
P13 Beware of new types of black-market financing!
--Warning on advanced payments for purchases followed by massive penalty charges -JFSA‘s Major Activities in April (P14 -)Access the online version here
https://www.fsa.go.jp/en/newsletter/index.html

Address by Minister of State for Financial Services SUZUKI
Shunichi at the 97th annual meeting of the Trust Companies
Association of Japan
Minister of State for Financial Services SUZUKI
Shunichi delivered the following address at the 97th
annual meeting of the Trust Companies Association ofJapan*1 (hereinafter called the trust association), a
general incorporated association, held on April 13, 2022,
in combination with an online delivery platform.
The meeting can be seen on the trust association's
website*2.

Photo: Minister SUZUKI addressing the annual meetingof the trust industry○ Preface
I am Minister of State for Financial Services
SUZUKI Shunichi. Thank you very much for inviting
me to the trust association's 97th annual meeting.
This year marks the 100th anniversary since the Trust
Act and the Trust Business Act were enacted in 1922.
This meeting started in the following year of 1923, and I
would like to express my heartfelt congratulations on the
successful convention of this time-honored assembly. I
would also like to take this opportunity to express the
expectations I place on you in charge of the trust
business.

*1

1○ On sustainable finance
The importance of sustainable finance, which
contributes to the settlement of social problems, isgrowing at a time when it is urgently necessary toaddress problems such as climate change and economic
disparities.
Now that huge funds are needed to finance capital
investment and technological development for such
purposes as achieving a decarbonized society, it isimportant to create environments that duly appreciate
Japanese companies' efforts and technologies for theestablishment of a sustainable society and make use ofboth domestic and overseas investments funds.
The FSA will carry out a variety of programs,
positioning (i) enhancement of corporate disclosure, (ii)exertion of market functions and (iii) exertion offinancial institutions' functions as three pillars, tosupport ESG-related corporate efforts. It will
simultaneously seek to establish an attractive market as
an international financial center that will link both
domestic and overseas funds to growth sectors.
Decarbonization and other challenges related tosustainability will lead to the sustainable growth of eachcompany through conversion to new industries andsocial structures.
I think it is important for trust banks, which manage
assets on behalf of pension funds and other institutional
investors, to deepen dialogues on management strategies,
including decarbonization, with the companies they
invest in so as to encourage them to raise their corporate
value on a medium- and long-term basis.

○ Response to digitization
Next, I will talk about how to cope with digitization.
Environments for financial settlements have greatlychanged as a result of advances in financial digitization

The trust association is an industry organization grouping financial institutes offering trust services (trust banks, city banks,regional banks and so forth) and trust companies. As of March 2022, it consists of 82 members. For the purpose ofdeveloping the trust system and enhancing public interests, the association engages in various activities, such as public
relations for the social functions of trust and so forth, trust-related research and studies, the collection of referencematerials and proposals to government offices and others concerned.
*2 To see the annual meeting of the trust industry, visit its website athttps://www.shintaku-kyokai.or.jp/news/presidential_conference/convention/entry-192433.html (Available in Japanese)and increased international demands for measures toaddress monetary laundering and other issues.
Under the circumstances, we submitted "a bill topartially amend the Payment Services Act, etc." to theDiet on March 4.
The bill envisions creating regulations on trading in
so-called stablecoins and adopting measures, with trustbanks and trust companies in mind, to issue stablecoinsbased on the mechanism of trust beneficiary rights.
While the Diet will deliberate on the bill, I expect you
to pay heed to such institutional measures and facilitate
programs that take into account a balance between
financial innovation and the protection of users.

○ Expectations for trust industry in super-aging
societyNow, I would like to discuss expectations for the trust
industry in a super-aging society.
Japan's falling birthrate and aging population havebeen accelerating in recent years. In October 2020, one
out of every 3.5 people or so in Japan became 65 or older.
Japan has already become a super-aged society as its
population aging rate now stands at 28.8%.
In the meantime, 'financial assets accumulated byhouseholds exceeded 2,000 trillion yen at the end of lastyear, roughly two-thirds of which are reportedly owned
by households of people aged 60 and over. In otherwords, it is calculated that households of people aged 60
and over have assets worth as much as 1,300 trillion yen.

To settle challenges in a super-aging society, thefunctions of trust to transfer and manage assets need to
be exercised more effectively.
The trust industry has provided a variety of trust
services based on customer needs, such as testamentaryand other inheritance-related trusts and trusts foreducation. I hope that the industry will continue todevelop and promote more trust products and services
designed to address social and economic challenges.

○ In closing
Throughout the 100 years since the enactment of theTrust Act and the Trust Business Act, the trust industry
has provided the functions of trust to meet demands inthe changing times and has contributed to the settlementof various social and economic problems.
Economic environments and social structures
surrounding Japan have been rapidly changing in recent
years. I think therefore that the trust industry is being
required to change the roles it plays. I expect the trust
industry to meet the expectations placed on it andachieve further growth.
Last but not least, I would like to close my speech bywishing for the further development of the trust industry
and for the health and prosperity of all participants in thismeeting.

While the population aging rate is expected to keep
rising, elderly people share such worries as• How to passed on accumulated assets to the next
generation, and• How to manage assets amid concerns that aging isaccompanied by increases in physical burden andfalls in cognitive capacity.
Worries of such a kind are expected to become familiar
to more people in Japan.

Photo: During the trust association's annual meeting2

Policy Commentary Corner

Publication of "Toward Enhancement of Banks' Disclosureof Allowance for Loan Losses"
MATSUMOTO Ai, Deputy Director
SHIRAI Shohei, Deputy Director
Regional Financial Planning Office, Banking Business Division II, Supervision Bureau
1. Preface
Financial institutions book allowance for loan losses
in their balance sheets to prepare for future losses onloans in the event of defaults or non-payments anddisclose how to book them as a note in their accounting
statements. They used to book allowance for loan losses
in a uniformed manner based on the FSA's Inspection
Manual and tend to disclose them in a uniformed mannerin line with the way of making allowances.
In December 2019, however, the FSA abolished theInspection Manual and released a discussion paper on
JFSA’s Supervisory Approaches to Lending Business(tentative translation). Financial institutions have since
been reviewing their ways of booking allowance for loan
losses in line with their management strategies, lending
policies and so forth while examining how to utilize avariety of information (Figure 1). In addition, the meansof making allowances are diversifying as the effects of
COVID-19 infections are taken into account.
Along with the diversified means of making
allowances, their disclosure by financial institutions,which enables investors and other users of financial
statements to understand the thoughts behind the way ofbooking allowance for loan losses and compare financial
statements, has become more important. While there arefinancial institutions that try to give more detailed

accounts about their ways of calculating provisions toinvestors and others through the disclosure of those ways,
there also are calls for deliberations on desirable levels
of information disclosure, namely how far the disclosure
should be extended and upgraded.
Based on such calls and other factors, the FSA held astudy session on the enhancement of banks' disclosure ofallowance for loan losses on February 21, 2022, whereinvited analysts and representatives from the JapaneseInstitute of Certified Public Accountants and theJapanese Bankers Association discussed how banks'
disclosure of allowance for loan losses should be. The
FSA compiled opinions and actual discussed in thesession into a report, titled "Toward the Enhancement ofBanks' Disclosure of Allowance for Loan Losses(tentative translation)," and released it on March 1.*
Principal contents in the report are introduced in thispaper.
2. Points on banks' allowance for loan losses from theinvestors
The released report refers to points drawing attention
from investors and others about banks' allowance forloan
losses,asmentioned by analysts. Whereas differences in the way(Figure 1)*

3

For the "Enhancement of Banks' Disclosure of Allowance for Loan Losses " released on March 1, 2022,
visit https://www.fsa.go.jp/news/r3/singi/20220301.html (Available in Japanese)of calculating provisions are widening between banks,
there are expectations that the following should bereadable in disclosed information to make it possible toconduct comparative analyses between banks, and timeseries analyses of individual banks and other analyses indetail with regard to banks' allowance for loan losses:(1) Differences in the background concept ofmethods of calculating allowance for loan losses
between banks(2) Changes, if any, in a method of calculatingallowance for loan losses(3) Outlook for future credit risk
Taking into account these points of disclosure
expected by investors and others, participants in the
study session discussed characteristic cases of disclosure
under the current practices and conceivable factors of
disclosure regarding a calculation method of allowance
for loan losses based on future information and
expectations (Figure 2).

3. Characteristic cases of disclosure under thecurrent practice
As mentioned below, characteristic cases of
disclosure, taken up at the study session, are referred toin the released report with regard to "loan-loss

provisioning standards" and "material accounting
estimates," designated as "notes" in financial statements.
(1) Loan-loss provisioning standards(i) Cases of booking grouped loans in calculating loanloss ratio or bankruptcy probability(ii) Cases of booking method of calculating amountdeemed necessary regarding loans to borrowers
considered in danger of bankruptcy(iii) Cases of mentioning a set period (other than one
year or three years) in which losses are expected(iv) Cases of mentioning specific means or others ofnecessary adjustments(2) Material accounting estimates(i) Case of mentioning reasons for designating theimportance of allowance for loan losses as subject
to notice(ii) Case of mentioning the addition of allowance forloan losses due to the impact of COVID-19
infections as well as the method and amount ofaddition(iii) Case of mentioning reasons for the use of past loanloss ratios, etc. or major assumptions in specificterms(Figure 2)

Brief summary of "Enhancement of Banks' Disclosure of Allowance for Loan Losses“* Below, principal views voiced at the study session are enclosed with dotted lines.
Characteristic cases of loan-loss
provisioning standards

Characteristic cases of material
accounting estimates(i) Grouping in calculating loan-loss ratio orbankruptcy probability(i) Reasons for designating the importance ofloan-loss reserves as subject to notice• Case of mentioning reasons for designating
the importance of loan-loss reserves as subject
to notice• Case of further segmentation of debtor
classification• Case of classification by product or loan area

It may be useful to disclose the balance ofcredit, an expected loss period and an
expected loss rate for each group andthoughts behind them in accordance with aloan portfolio in understanding each bank's
foundation of calculating allowance for loan
losses.

(ii) Effects of COVID-19 on allowance forloan losses• Case of mentioning the addition of loan-loss
reserves due to the impact of COVID-19
infections as well as the method and amountof addition(ii) Means of calculating amounts deemednecessary regarding loans to borrowers
considered in danger of failing(iii) Major assumptions• Case of mentioning reasons for the use of pastloan-loss ratios• Case of mentioning specific assumptions(other than debtor classification)• Case of applying cash flow estimation method• Case of applying cash flow deduction method• Loan-loss ratio method or bankruptcy
probability method(iii) Set period of time in which losses are
expected• Case using average time left to maturity
The disclosure of average time left tomaturity in the case of using one year andthree years, among others, may be usefulfrom the standpoint of comparability.

To understand each bank's recognition of
future risks stemming from the impact of
COVID-19, it may be useful to disclose
sectors and amount highly likely to beaffected regarding allowance for loan losses,
and amounts regarding added provisions.

Conceivable factors of
disclosure regarding acalculation method of allowance
for loan losses based on future
information and expectations(i) Background of adopting a provision
method using future information• For example, management considers
provisions necessary to prepare for economic
fluctuations(ii) Contents of the model
Summary and concept of the model, including
the following:• Content and numerical value of and grounds
for macroeconomic index• Content of scenario if used
• Method of weighing each scenario if adopted(iii) Arrangement and organizational
structure to make optimum estimation• To avoid arbitrariness and ensure certain
objectivity of the estimation• Arrangement and organizational structure to
examine the model, including back-testing
Disclosure may be conducted by stages. The
background, adopted indices and theconception of the model may be disclosed
first, and then the contents of the model(macroeconomic indices, etc.) may bedisclosed when the model stabilizes.

4Regarding the above-mentioned characteristic cases,
there were voices such as “since information of grouping
is important, it is useful to disclose the balance of credit,
an expected period of losses and an expected rate oflosses for each group" and "in the case of additional
provisions under the impact of COVID-19 infections, it
is useful to mention major assumptions for the move in a
specific manner.

4. Conceivable factors of disclosure regarding acalculation method of allowance for loan losses
based on future information and expectations
The released report also introduces issues discussed
at the study session with regard to conceivable factors of
disclosure regarding allowance for loan losses based on
future information and expectations, so-called forwardlooking provision.
The study session discussed three points: (i)Background to adopting the method of calculating
provisions based on future information, (ii) Contents ofthe model, and (iii) Arrangement and organizational
structure to make optimum estimation. While a numberof banks have adopted the new provision method since
the release of the discussion paper on JFSA’s
Supervisory Approaches to Lending Business, there
have yet to be enough disclosure cases that can be used
as reference. During the session, therefore, a suggestion
was made that disclosure should be made by stages asfollows: first, the background, adopted indices, conceptof the model, and so forth behind the adoption of theprovision method, using future information, should be
disclosed, and then once the model is stabilized, thecontents of the model for macroeconomic indices'
forecasts, etc. should be disclosed.

5

5. In closing
Banks are increasingly required to work out a variety
of innovative means of extending loans and dealing withloans so as to meet various ways of growth and needs
envisioned by corporate managers through the exerciseof financial functions. With regard to the disclosure ofallowance for loan losses, there has been a steady shift
from the uniform way of disclosure to diverse methods
that reflect each bank's characteristics and features.
The "Enhancement of Banks' Disclosure of
Allowance for Loan Losses " was released as a yardstickfor reference when banks attempt to give more detailed
accounts about their ways of calculating provisions toinvestors and others by enhancing their disclosure. We
hope that the released report will serve as the first step
toward achieving environments for banks' active
disclosure of provisions. We also hope that auditing
firms, analysts and other concerns, in addition to banks,
will read the report and so raise momentum toward theenhancement of provision disclosure in the banking
industry through dialogues with various stakeholders.
The FSA will continue to collect examples of cases
related to provision methods and their disclosure to
support the further enhancement of the disclosure andfurthermore efforts to make the estimation of credit risks
more suited to each banks, which is the basis of the
discussion paper on JFSA’s Supervisory Approaches to
Lending Business.

Policy Commentary Corner

Publication of a report by the "Expert Panel on Water Disaster Insurance
Premium Rate in Fire Insurance"
YANO Masataka, Insurance Actuary, Insurance Product Office,IZUMI Shota, Subsection Chief, Property and Casualty Insurance Product Subsections II and III
TARUI Junpei, Subsection Member, Property and Insurance Casualty Insurance Product Subsection III
Insurance Business Division, Supervision Bureau

The FSA established the "Expert Panel on Water
Disaster Insurance Premium Rate in Fire Insurance"(Chairman: SUZAKI Hiroshi, Professor, Graduate
School of Law, Kyoto University) in June 2021 and hassince been discussing how to break down the water
disaster insurance premium rate in accordance withwater disaster risks and points of attention in promoting
discussions among property and casualty insurance
firms and others.
In March this year, the FSA released the panel's"Report Pertaining to Water Disaster Insurance Premium
Rate in Fire Insurance."* The following are the principal
points in the report.

1. Background
Pertaining to compensation for water disasters(hereinafter water disaster compensation), insurance

premium rates (hereinafter water disaster insurance
premium rates) are unified throughout the country. In
recent years, property and casualty insurers and others
are considering fragmenting the rate on the basis ofupgraded data on water disaster risks and from theviewpoint of fairness of insurance premium payments
during a policy period (hereinafter fragmentation of thewater disaster insurance premium rate).
In implementing the fragmentation of the water
disaster insurance premium rate, it is considerednecessary to conduct appropriate deliberations from thestandpoint of disseminating and promoting water
disaster compensation.
Under the circumstances, the panel has been set up tosort out points of attention for the sake of discussing
how the fragmentation of the water disaster insurance
premium rate should be and help property and casualty
insurers and others proceed with studies.

(Figure 1) Expert panel's Report Pertaining to Water Disaster Insurance Premium Rate in Fire Insurance
Summary (1) (Current state and challenges)
I. Purpose of panel
 To compile how the premium rate should be and what should be taken into account, such as the balance between the possibility of purchasing
policies and fairness of premium payments, in order to encourage property and casualty insurers and others to conduct more appropriate studies
on the fragmentation of the water disaster insurance premium in accordance with water disaster risks

III. Problems with the water disaster insurance premium
rate and responses by insurers, etc.

II. Current state of fire insurance Fire insurance premium rates have continued to be raised inrecent years due to the frequent occurrence, intensificationand so forth of natural disasters.
 One major reason is the frequent occurrence andintensification of typhoon and heavy rain disasters.
 Under the circumstances, however, the water disasterinsurance premium rate for individuals does not reflect
differences in each policyholder's waster disaster risk.

 As customers in areas with a shallow depth of water immersion on a flood
hazard map tend to remove water disaster compensation from thecoverage of fire insurance, an unexpected shortage of compensation may
occur if, by any chance, a large-scale water disaster occurs.
 From the viewpoint of improving the fairness of insurance premium
payments, therefore, property and casualty insurers and others are
studying the fragmentation of the water disaster insurance premium rate
so as to reflect the risk of each area.
(Reference) The adoption rate of special policy clauses based on the depth categories of water immersion
pertaining to water disaster compensation in fire insurance (in the case of Tokyo)(Reference) Payment of insurance claims
Claims paid for natural disasters under fire insurance(Unit) Hundreds of millions of yen

 Policyholders residing in areas with relatively low water disaster risks are
rarely satisfied with the current water disaster insurance rating structure.

12000

12,507
Heavy downpour by
Typhoon No. 15< The adoption rate of special policy clauses based on the depth categories of water immersion
pertaining to water disaster compensation in fire insurance (in the case of Tokyo) >1,392 Heavy downpour by: Water disaster

Heavy downpour in July 2018
Heavy downpour by Typhoon No. 21
Heavy downpour by Typhoon No.24: Snow disaster

Typhoon No. 19* The depth of water immersion means the depth of an area
submerged in water because of flooding, etc.
The following is an image of depth

10,596

Standard: Wind and haze disaster
10000
Heavy downpour in
Kanto/Tohoku regions (outburst
floods from Kinu River) in 2015

Heavy downpour in northern
Kyushu (outburst floods from
Yabe River) in July 2012

4000

202

Heavy downpour by Typhoon No. 12
Heavy downpour in Niigata/Fukushima(outburst floods from Yata River) in
July 2011

Heavy downpour innorthern Kyushu in
2017

2,568

Down by
about 11%

Heavy downpour (sedimentdisaster in Hiroshima) inAugust 2014)

249
349
2000

288

218

（注）マンションに住む契約者は除く(Note) Policyholders
living in condominiums are excluded

146
220
52
0
Fiscal2010
2010年度Fiscal2011
2011年度Fiscal2012
2012年度Fiscal2013
2013年度Fiscal 20142014年度Fiscal 2015
2015年度Fiscal 20162016年度Fiscal 20172017年度Fiscal 20182018年度Fiscal2019
2019年度

Source: Prepared by the General Insurance Association of Japan based on data provided by the General Insurance Rating Association of Japan*

Depth of water
immersion
~0.5m
(72%)

Depth of water
immersion
0.5m ~ 1m（4%)

Depth of water
immersion
1 ~ 3m(14%)

Depth of water
immersion
3 ~ 5m(9%)

Source: "Guidance of How to Prepare Water Disaster Hazard Map (April 2016)" (the Ministry of Land,
Infrastructure, Transport and Tourism)(https://www.mlit.go.jp/river/basic_info/jigyo_keikaku/saigai/tisiki/hazardmap/index.html)

Depth of water
immersion
5m ~(1%)
・・・ Weight of contract

Source: Prepared by the General Insurance Rating Organization of Japan based on fire insurance statistics (compiled by the General Insurance Rating Organization of Japan) and planned hazard
maps for rivers under state management

For the "Publication of the Expert Panel's Report Pertaining to Water Disaster Insurance Premium Rate in Fire Insurance"
released on March 31, 2022, visit https://www.fsa.go.jp/news/r3/singi/20220331.html (Available in Japanese)62. Awareness of problems
Water disaster risks, the theme of studies at the panel,include a variety of risks, such as the "inundation ofriver water" or a flood that occurs when a river flows
over its banks or the banks burst amid a typhoon ordeluging rain, "inundation inside a levee" that occurs
when rainwater fallen on an urban area fails to drain to a
local river and overflows, damage from a landslide, andhigh tide water. The risks are not limited to structures insuch areas as those having a river nearby.
To prepare for such water disaster risks, property andcasualty insurers sell fire insurance policies that offer
compensation for water damage in addition tocompensation for damage to structures, householdarticles and so forth caused by fire, wind, snow and otherdisasters.
The payment of fire insurance claims has been on therise due to an increase in the occurrence of natural
disasters in recent years. As a result, an increase ininsurance premiums has remained unavoidable.
As mentioned above, the nationally unified water
disaster insurance premium rate, which does not reflect
differences in the water disaster risks that eachpolicyholder is exposed to, applies to fire insurance forindividuals.
In raising fire insurance premiums, therefore, thewater disaster insurance premium rate is uniformly hiked
regardless of each policyholder's water disaster risk. The
adoption rate of special policy clauses in the past 10
years shows that low-risk people, such as those in areas
with a shallow depth of water immersion on a flood
hazard map, tend to shun water disaster compensation(hereinafter "shunning of water disaster compensation")when they take out fire insurance or renew theircontracts. It is therefore considered that policyholders
residing in areas with relatively low water disaster risks,such as the inundation of river water, are rarely satisfied
with the water disaster insurance premium rate.
Without the special policy clause of water disastercompensation, an unexpected shortage of compensation
may occur if, by any chance, a large-scale water disasteroccurs. Given the possibility of such a worrisomeconsequence, it is important to heighten economic
preparedness for water disasters in society at large
through the widespread adoption of water disastercompensation. The panel therefore spent a large part ofdeliberations on how the fragmentation of the water
disaster insurance premium rate should be.

7

3. Due fragmentation of water disaster insurance
premium rate
The fragmentation of the water disaster insurance
premium rate in fire insurance is required to meet thebasic premise that premium rates should be set inaccordance with actual risks. In addition, it is expected
to generate meaningful effects, such as (i) differences ininsurance premiums enable policyholders to recognize
differences in the scale of risk and therefore raise theawareness of risks among high-risk policyholders(hereinafter the "announcement effect of insurance
premiums) and (ii) economic preparedness for water
disasters is heightened in society at large by curbing theshunning of water disaster compensation among low-risk
policyholders by making insurance premium payments
fairer. The panel thus concluded that progress toward thefragmentation of the water disaster insurance premium
rate is moving in a socially desirable direction.
But if differences in risks based on water disaster
information, such as "flood- and immersion-expectedarea maps," which serves as the foundation of flood
hazard maps, are directly reflected, preparedness forwater disasters may become insufficient as a steep rise inwater disaster insurance premiums will prevent people
who are exposed to high risks from adopting the special
policy clause of water disaster compensation when theytake out fire insurance or renew their contracts.
Therefore, the panel's main conclusion is that it isappropriate for the fragmentation of the water disasterinsurance premium rate to adopt a rating structure that
not only takes the fairness of premium payments into
account but also facilitates the adoption of insurance byhigh-risk people. (For more information, refer to theresults of compiling opinions in Figure 2.)

4. To improve workability
As mentioned above, the fragmentation of the water
disaster insurance premium rate will enhance the fairnessof premium payments by setting premium rates inaccordance with actual risks and contribute to anincrease in policyholders' awareness of risks through theannouncement effect of premiums. The practice is thus
expected to heighten economic preparedness for water
disasters in society at large.
Property and casualty insurers and others have
implemented programs to increase customers' awarenessof water disasters, such as the release of hazard maps

prepared on their own. To complement the risk
announcement effect of the fragmentation of the water
disaster insurance premium rate and enhance theeffectiveness of efforts to disseminate and promote water
disaster compensation through an increase in theawareness of risks, it is considered important forcustomers to recognize water disaster risks surrounding
them. To this end, property and casualty insurers andothers need to contrive their efforts so far to help themproperly understand the risks of inundation of riverwater, shown on flood hazard maps, and increase theirawareness of other water disaster risks. In particular, it isimportant for property and casualty insurers toproactively provide water disaster information tocustomers who are less prone to recognize risks mainly
because they reside in an area with a shallow depth ofwater immersion on the local flood hazard map andholders of long-term policies who have fewer
opportunities to review their contracts. The FSA will
support efforts of this kind by property and casualty
insurers and others.

5. Coming measures
The FSA, in cooperation with other government
ministries and agencies, and on the basis of this report,
will hold dialogues with property and casualty insurers
and others to help them conduct appropriate studies.

(Figure 2) Expert panel's Report Pertaining to Water Disaster Insurance Premium Rate in Fire Insurance
Summary (2) (Results of compiling opinions)IV. Direction and points of attention in studies on fragmentation of the water disaster insurance premium rate

Expert panel's Report Pertaining to Water Disaster Insurance Premium Rate in Fire Insurance Summary (2) (Results of compiling opinions) As the fragmentation of the water disaster insurance premium rate is expected to generate the following meaningful effects, such asheightening economic preparedness for water disasters as society at large, it represents a socially favorable direction:• Differences in insurance premium enable policyholders to recognize differences in the scale of risk and therefore raise theawareness of risks among high-risk policyholders (hereinafter the "announcement effect of insurance premiums)• Shunning of water disaster compensation among low-risk policyholders is curbed through an improvement in the fairness of
insurance premium payments.
 Points of attention in studies on segmentation are as follows:

Basic data for fragmentation

Gaps in fragmentation of premium rates

 As basic data for fragmentation, the use of a "flood- and immersionexpected area map" (flood hazard map), for example, to assess theinundation of river water is considered acceptable to consumers due tothe encompassing nature and objectivity of its information.

 From the standpoint of risk announcement effects, there is a viewthat differences in risks should be reflected more minutely as rating
disparities.

 The Land, Infrastructure, Transport and Tourism Ministry is
preparing a water disaster risks map(*) that shows ranges of water
immersion in accordance with the frequency of immersion, as part ofefforts to upgrade information on water disaster risks. Changes in suchrisk information are expected to be reflected in reviewing the water
disaster insurance premium rate.

 But there is concern that if differences in risks in water disaster
information are directly reflected, people living in high-risk areas
will not be able to afford to take out insurance and be adequately
prepared for water disasters.
 It is considered appropriate to adopt premium rates paying heed tothe possibility of people in high-risk areas taking out insurance.

* A water disaster risk map for the inundation of river water is being prepared together witha water disaster risk map that takes inundation inside a levee into account.

Regional divisions in fragmentation

Expected efforts by insurers

 Regional divisions in fragmentation are considered more satisfactory toconsumers if they are made to match as much as possible the assessmentof risks in a "flood- and immersion-expected area map" (flood hazardmap).

 From the viewpoint of enhancing the workability of risk
announcement effects through fragmentation, insurers need to
strive to collect the latest risk information and continue efforts toprovide water disaster and other risk information.

 From the viewpoint of providing insurance to consumers as
inexpensively as possible, however, there is concern that premiums will
increase due to rises in system and other costs if regional divisions are
made too minutely.

 As for marketing insurance policies after the fragmentation of thewater disaster insurance premium rate, insurers are expected toprovide customers with detailed accounts about the concept offragmentation, the state of applied rates and other matters ofconcern.

 Taking these points into account, it should be kept in mind that regional
divisions need to be arranged in a manner that contributes to consumer
benefits.(*)* Given these and other points, it is first considered that property and casualty insurers utilize the administrative divisions of municipal governments and others as regional divisions forreference loss cost rates they use to calculate their premium rates. Even in such a case, they can set regional divisions fragmented on their own. It is thus conceivable that they innovatively
fragmentate regional divisions as part of their management strategies.

8Policy Commentary Corner

Summary of Results of the 3rd Survey on the Use of LIBORKAWANA Shiro, Deputy Director
ISHII Yoshiyuki, Deputy Director
SUZUKI Kazuo, Deputy Director
GOMAMOTO Tetsuya, Section Chief
CHIBA Yuki, Associate
Banking Business Division I, Supervision Bureau
The Financial Services Agency (FSA) and the Bank ofJapan (BOJ) jointly conducted a survey on the use of
LIBOR (at end-December 2021), covering a wide rangeof financial institutions (banks, securities companies,
insurance companies, etc.), and published the results ofthe survey on March 31, 2022. We here outline the survey
results and explain what financial institutions are required
to do in the future, based on the survey.

panel-based LIBOR) was ceased at end-December 2021,
except for some USD LIBOR tenors. Ahead of the
LIBOR cessation date, financial market participants
promoted their transition away from LIBOR rates. Since
January 2022, synthetic LIBOR calculated using market
data for certain tenors of GBP and JPY LIBOR have beenreleased in a transitional manner. They are assumed to be
used as a safety net only for so-called tough legacy
contracts for which it is difficult to transition away from
LIBOR.*1 (Chart 1)
In consideration of such situation, the FSA and the
BOJ have monitored financial institutions' transition awayfrom LIBOR and encouraged their smooth transitions.
The survey was conducted to check progress in the

1. Overview of LIBOR cessation and objective of thesurveyThe London Interbank Offered Rate (LIBOR) had
been used by a wide range of financial market participantsfor various financial instruments and transactions. Yet,the publication of the LIBOR that had been calculated
based on reference rates provided by panel banks (i.e.,
Chart 1 Summary of LIBOR cessation(Note 1) The British Financial Conduct Authority (FCA) has the power to compel the administrator of LIBOR to continue publishing synthetic
GBP LIBOR up to a maximum period of 10 years on condition that it reviews the use of its power at least annually. Within 2022, the
FCA will seek views on retiring 1- and 6-month synthetic GBP LIBOR at end-2022 and on when to retire 3-month synthetic GBP
LIBOR.
https://www.fca.org.uk/news/press-releases/finalising-libor-transition-achievements-sterling-markets(Note 2) The FCA offered to consider whether to exercise the proposed power to require continued publication of a synthetic USD LIBOR
after June 30, 2023.
https://www.fca.org.uk/publication/documents/future-cessation-loss-representativeness-libor-benchmarks.pdf*19Regarding synthetic yen LIBOR, the FSA and the BOJ support the results of the public consultation on the treatment of tough legacy
contracts in Japan by the Cross-Industry Committee on Japanese Yen Interest Rate Benchmarks, including the points to note for usingsynthetic yen LIBOR, and require financial institutions to abide by the results.
Cross-Industry Committee on Japanese Yen Interest Rate Benchmarks, “Public Consultation on the Treatment of Tough Legacy
Contracts in Japan” (https://www.boj.or.jp/en/paym/market/jpy_cmte/cmt210928a.pdf)
The FSA, "Future Responses Based on Final Report on the Results of the Public Consultation on the Treatment of Tough Legacy
Contracts in Japan by the Cross-Industry Committee on Japanese Yen Interest Rate Benchmarks"(https://www.fsa.go.jp/policy/libor/toughlegacy211125.pdf ) (Available in Japanese)transition away from panel-based LIBOR for which the
publication was ceased at end-December 2021, as well as
the feasibility of synthetic LIBOR and progress intransition away from USD LIBOR for which the
publication will be ceased at end-June 2023.
2. Key results of the 3rd survey on the use of LIBOR(1) Transition away from panel-based LIBOR for
which the publication was ceased at end-2021
There are two ways to transition away from LIBOR –the advanced transition to replace LIBOR with alternativereference rates and the incorporation of fallback
provisions that represent advanced agreement on
arrangements after the permanent cessation of LIBOR
publication.
For contracts referencing panel-based LIBOR for
which the publication was ceased at end-December 2021,
more than 90% of financial institutions roughly completed
the transition though transition into advance or theincorporation of fallback provisions or their agreementwith relevant parties to transition to alternative reference
rates by the first interest rate reference date after the
cessation even in the absence of fallback provisions (Chart
2). The survey confirmed that the outstanding value andnumber of contracts that did not incorporate fallback
provisions at end-December 2021 had declined
substantially from the previous survey (as of endDecember 2020) for assets (i.e., loans, etc.), liabilities (i.e.,
deposits and bonds, etc.), and derivatives (Chart 3). Somefinancial institutions have existing contracts for whichtransition policies are not yet decided due to the factors
such as customers' requests. However, it was confirmedthat they had sufficient time to take transition procedures
before the first days for referencing benchmark rates after
the LIBOR cessation and agreed with relevant contract
parties on the need for such procedures.

The survey also found that most of the respondents
expected to limit the use of synthetic yen and GBP
LIBOR during 2022.
(2) Transition away from USD LIBOR for which the
publication will be ceased at end-June 2023
The U.S. authorities have published guidelines andother documents for an orderly transition from USD
LIBOR for which the publication will be ceased at endJune 2023, calling for stopping the new use of USD
LIBOR from January 2022 except for special cases.*2 The
FSA has urged the Japanese financial institutions to stop
using
them,
to
ensurea
globally-consistent(Chart 2) Status of LIBOR transition arrangement at
end-December 2021

(Chart 3) Number of contracts referencing JPY LIBOR and incorporation of fallback provisions(Note) Figures for end-December 2020 are those as of the previous survey (contracts that mature beyond end-2021).
*2

Joint statement by five U.S. organizations (SR21-17/CA21-15）(October 22, 2021)(https://www.federalreserve.gov/supervisionreg/srletters/sr2117.html)
FRB FAQ （SR21-12 Attachment B）(November 19, 2021)(https://www.federalreserve.gov/supervisionreg/srletters/sr2112.html)

10transition.*3
The survey confirmed that most of the surveyed
financial institutions had completed arrangements for the
cessation of new transactions referencing LIBOR fromJanuary 2022 and already ceased such new transactions inprinciple, and that financial institutions that had not yet
completed such arrangements were on track to do so after
the beginning of 2022.
On the other hand, the survey confirmed that USD
LIBOR had frequently been referenced in contracts thatmature beyond the cessation at end-June 2023. Also, thesurvey found that fallback provisions had yet to beincorporated for many contracts above mentioned (Chart
4).
3. Actions that financial institutions are required to
do going forward(1) Transition away from panel-based LIBOR for
which the publication was ceased at end-2021 andfrom synthetic LIBOR
Since 2022, financial institutions are required to takenecessary actions in a coordinated way after the cessationof panel-based LIBOR, including the appropriate
management of existing contracts referencing LIBOR andthe switch to alternative reference rates due to thetriggering of fallback provisions. If using synthetic LIBOR,
financial institutions are also required to take appropriate
actions in a coordinated way for their customers andtransition to alternative reference rates, while keeping in
mind that the use of synthetic LIBOR would be temporary.

LIBOR by end-June 2023 based on guidelines and otherdocuments published by the U.S. authorities andcommittees. Financial institutions will be required to
identify and manage their exposure of contracts in USD
LIBOR appropriately, to cease new transactions
referencing USD LIBOR, to transition from USD LIBOR
for existing contracts in advance, and to incorporate
fallback provisions that specify robust alternative reference
rates.
4. Actions by the FSA and the BOJ going forward
Based on the survey, the FSA and the BOJ will jointly
continue to monitor financial institutions' transition awayfrom existing contracts referencing panel-based LIBOR for
which the publication was ceased at end-December 2021
and from USD LIBOR for which the publication will beceased at end-June 2023 and require financial institutions
to take appropriate actions in light of the situation.
The FSA and the BOJ will also monitor financial
institutions' use of synthetic yen LIBOR and their
engagements with their customers when using synthetic
yen LIBOR as needed. In particular, the FSA and the BOJ
will check the reasons and grounds for the use of synthetic
yen LIBOR, the responses to important notices whensynthetic yen LIBOR is used, and the progress oftransition from synthetic yen LIBOR to alternativereference rates for existing contracts. Based on themonitoring results, the FSA will consider taking
supervisory measures as deemed appropriate.

(2) Transition away from USD LIBOR for which the
publication will to be ceased at end-June 2023
The FSA and the BOJ have been requesting financial
institutions to take actions for transition away from USD(Chart 4) Number of contracts referencing USD LIBOR and incorporation of fallback provisions(Note 1) The figures in the charts are for contracts maturing beyond end-June 2023 among those referencing USD LIBOR tenors(overnight, 1-, 3-, 6-, and 12-month) for which the publication will be ceased at end-June 2023.
(Note 2) Among most of the insurance products that are subject to responses such as approval, some were approved after the beginning of2022. Regarding insurance products that have not yet been approved, consultations are underway between insurance companies
and the FSA.
*3

11

The FSA has required financial institutions to treat transactions referencing foreign currency LIBOR according to timelines, guidance,
etc. given by relevant foreign authorities or committees for those currencies.
The FSA "How to Treat Transactions Referencing Foreign Currency LIBOR (June 2021)(https://www.fsa.go.jp/policy/libor/fsb_202106_ja.pdf) (Available in Japanese)Notices

Message to the Market(Explanation of recommendation based on financial instruments
business operator inspection results)
The Securities and Exchange Surveillance Commission ("SESC") posts explanation of recommendation that it has
issued on its website as an article titled "Message to the Market."
The content of "Message to the Market" posted on April 28, 2022, is as below.
* For the full text of "Message to the Market" , please access the SESC's website athttps://www.fsa.go.jp/sesc/message/20220428-1.html. (Available in Japanese)

Recommendation for administrative disciplinary action against AMI
Co., Ltd.
The SESC on March 25, 2022, recommended that the
FSA take administrative disciplinary action against AMI
Co., Ltd.(hereinafter “the Company”)*1[Summary]
The Company solicited the purchase of Fund A andFund B, which are foreign investment securities, between
August 2018 and December 2020, and received
compensations for the solicitation from a management firm
for Fund A and an investment firm for Fund B. Such actsare recognized as handling public offerings or private
placements of foreign investment securities.
The abovementioned acts by the Company fall under the
category of “Type I Financial Instruments Business” asprescribed in Article 28, paragraph (1) of the Financial
Instruments and Exchange Act (hereinafter “the Act”), andconducting such acts without obtaining registration ofchange based on Article 31, paragraph (4) of the Act
constitutes a violation of Article 29 of the Act.
In January 2020 and January 2021, the Company
submitted notification of two acquaintances (individual
business owners) of its Representative Director
SUGAWARA Kazuhiko as persons that makes investment
decisions for the Company to the Director-General of the
Kanto Local Finance Bureau. However, it was identified in
the latest inspection of the Company that the two conductedinvestment advisory services in the name of the Company
even in the absence of its employment contracts with themor its control and supervision of them.
Specifically, the two concluded investment advisory
contracts with customers and provided advice, giving
customers document for delivery upon conclusion ofcontract and investment advisory contracts that specified theCompany's trademark and registration number.
The Company thus had others to conduct financial
instruments business in its name, being identified as
violating Article 36-3 of the Act.
It was identified that the Company's business operations
were actually implemented by Representative Director
Sugawara alone and the development of its business andensuring appropriate business operations were left to him.
Under these circumstances, it was also identified that he*1*2

conducted the abovementioned illegal acts and othernumerous illegal acts, including the failure to provide
documents for delivery prior to the conclusion of a contract
and the falsification of business reports and other documents,and failed to develop required business management
arrangements such as internal compliance rules.
Given that these illegal acts were attributable toRepresentative Director Sugawara's remarkable lack ofawareness of legal compliance and investor protection, it
was identified that the Company failed to have a sufficientpersonnel system to accurately perform investment advisory
and agency business. Given that no arrangements weremade to check or deter Representative Director Sugawara's
arbitrary decisions, it was also identified that the Company
failed to establish a business system required to accurately
perform investment advisory and agency business.
The abovementioned status of the Company falls under"a person who does not have a personnel structure sufficient
to conduct Financial Instruments Business in an appropriatemanner" as prescribed in Article 29-4, paragraph (1), item(i), (e) of the Act and "a person who does not have a system
required to conduct Financial Instruments Business in an
appropriate manner" as prescribed in Article 29-4,
paragraph (1), item (i), (f) of the Act. Therefore, suchsituation of the Company falls under Article 52, paragraph(1), item (i) of the Act.
[SESC Message]
In this case, Representative Director Sugawara, who was
the only full-time officer and employee, took leadership incommitting the abovementioned offenses due to his
remarkable lack of awareness of legal compliance andinvestor protection, and as a financial instruments business
operator, grave problems have been identified regarding
investor protection.
The SESC will take tough actions against such acts thatare problematic in regard to investor protection. On April 12,2022, the Director-General of the Kanto Local Finance
Bureau took administrative disciplinary action against theCompany, revoking its registration and issuing a business
improvement order.*2

For "Recommendation for administrative disciplinary action against AMI Co., Ltd." as published on March 25 this year, see
https://www.fsa.go.jp/sesc/news/c_2022/2022/20220325-2.html. (Available in Japanese)
For "Administrative disciplinary action against AMI Co., Ltd." as published on April 12 this year, see
https://lfb.mof.go.jp/kantou/kinyuu/pagekthp202204122609.html on the Kanto Local Finance Bureau website. (Available in Japanese)

12Notices

Beware of new types of black-market financing!
--Warning on advanced payments for purchases followed by massive penalty charges --13

JFSA's Major Activities in April(April 1 to April 30, 2022)
 Supervisory Focus Points and Actions in Light of the Losses Resulting from the Default of a U.S.
Investment Fund (April 20, 2022)
 Updated : Guidebook for Registration of Investment Management Business and Other Financial
Instruments Businesses (April 15, 2022)

 Sixteenth Meeting of the ″Council for Cooperation on Financial Stability” (April 14, 2022)
 Stewardship Code : 323 institutional investors have signed up to the Principles for Responsible
Institutional Investors as of March 31, 2022 (April 13, 2022)
 The eighth meeting of the Working Group on Corporate Disclosure of the Financial System Council(April 11, 2022)
 EU-Asia Pacific Forum on Financial Regulation (April 5, 2022)
 International Forum of Independent Audit Regulators published the Report on 2021 Survey ofInspection Findings (April 5, 2022)

・ JFSA's official English Twitter accounthttps://twitter.com/JFSA_en

We are promoting information
dissemination using Twitter!

・ On May 26 (Thursday), the FSA will hold an international symposium titled"Transition to Net-Zero: The Role of Finance and Pathway toward Sustainable
Future" at the Toranomon Hills Forum, focusing on the pathway for transition to net-zeroemissions and the role of transitional finance in achieving a sustainable society. Financial
and industrial sector representatives, including foreign investors and key participants inprivate net-zero initiatives, as well as government officials, are invited to join us for a
lively discussion.
See the following official website for details and signing up for participation:
https://supportoffice.jp/fsasustainable2022/index_en.php

Editorial Postscript
I received many souvenirs at my workplace from colleagues who enjoyed trips in theholiday-studded golden week, which gave me the sense that economic activities havebegun again.
I will continue my own COVID-19 infection prevention measures so
as to help this positive trend continue.
SAITO Takafumi, Director,
Public Relations Office, FSA

14(*The opinions expressed in this report are the personal views of the author and do not necessarily reflect the organization
with which the author is affiliated.)