Concept of Dispositions Against Sales Representatives

Established on July 15, 2021

1. Basic Concept
With regard to the Financial Instruments Intermediary Service under the Financial Instruments andExchange Act, the Association will take dispositions against sales representatives (including dispositions
against individual financial instruments intermediary service providers; hereinafter referred to as “SalesRepresentatives Disposition”). The main purpose of Sales Representatives Dispositions is to prevent theoccurrence of any violation of laws and ordinances, etc. by sales representatives and to prevent therecurrence thereof, thereby securing fairness in transactions, etc. for public offering or private placement ofinvestment trusts and thoroughly protecting investors, thereby contributing to the maintenance andimprovement of confidence in the asset management business and the financial instruments exchange
market.
The Association, therefore, has decided to sort out considerations to be taken into account in Sales
Representatives Dispositions, and then clarify and break down them into patterns in order to ensure
effectiveness of such Dispositions.
Based on this concept, elements to be considered in the examination of dispositions against sales
representatives are summarized as stated in 2. below. It is expected that this arrangement will increase thetransparency and predictability of dispositions against sales representatives and will also contribute to theimprovement of compliance awareness among sales representatives with laws and ordinances, etc.
The following items are examples of factors to be taken into account in the examination of dispositions,and other items that are deemed necessary may be taken into consideration according to the content of thematter.

2. Factors to be Considered When a Disposition is Taken upon Occurrence of Violation of Laws andOrdinances, etc.
(1) Seriousness of the act
The period and frequency (number of cases) of violation of laws and ordinances, etc., the number ofpersons engaged in such violation, the effect in terms of value (damage to customer assets), etc. shall betaken into consideration.
When it is determined that any violation of laws and ordinances, etc. has been committed for along period of time or on a large scale, strict measures shall be taken accordingly.

(2) Malicious nature of the act(i)Presence or absence, and degree of willful intention or negligence
In any violation of laws and ordinances, etc., measures shall be taken in consideration of whether－1－such violation of laws and ordinances, etc. was committed intentionally, such as the case where it isrecognized that there was a purpose of obtaining its own gain, or caused by carelessness or
negligence such as a mistake in paperwork.
When the degree of willful intention or negligence is deemed serious, strict measures shall betaken accordingly. .
(ii) Position of the person engaged in the violation
The title of the violator of laws and ordinances, etc. shall be taken into consideration. For example,
when the violator of laws and ordinances, etc. is a manager or the like, such as an officer in thefinancial instruments intermediary service provider, strict measures shall be taken accordingly inconsideration of the position in the same industry, level of responsibility, and other factors.

(iii) Repeatability, and presence or absence of similar indication in the pastWhen any similar violation of laws and ordinances, etc. is repeatedly committed or when any similar
violation has been pointed out in a past administrative inspection or inspection by a self-regulatoryorganization, etc., measures shall be taken in consideration of responses to the previous notice andthe status of corrective measures taken.
If there is any substantial imperfection in the subsequent response, such as failure to takeappropriate improvement measures, or if the previous indication has been overlooked, strictmeasures shall be taken accordingly.

(3) Impact of the act(i)Extent of loss of confidence in the asset management businessMeasures shall be taken in consideration of the extent to which investors’ confidence in the asset
management business may be lost, such as the fairness of transactions, in the public offering or
private placement of investment trusts.
In the event that the impact on investors is deemed material and the credit of the asset
management business is deemed substantially impaired, strict measures shall be taken accordingly.

(ii) Effect on customers, presence or absence of complaints from customers
Measures shall be taken in consideration of the content and extent of losses imposed on customers
and the status of complaints from customers regarding violation of laws and ordinances, etc.
In the event that the impact on customers is deemed serious, such as a serious concern arising
about the protection of customer assets, etc. due to a great number of customers subject to theviolation of laws and ordinances, etc. and a huge amount of effects, strict measures shall be takenaccordingly.

(4) Awareness and attitude about compliance with Laws and Ordinances, etc.
Measures shall be taken in consideration of recognition of Laws and Ordinances, etc., compliance－2－awareness, and attitude with regard to violation of Laws and Ordinances, etc.
In the event of any lack of awareness of compliance with Laws and Ordinances, etc., strictmeasures shall be taken accordingly.

(5) Status of response to violation of laws and ordinances, etc.
(i)

Background to discovery of violation of Laws and Ordinances, etc.
It is taken into account whether the violation of laws and ordinances, etc. was discovered through an
administrative inspection or an inspection by a self-regulatory organization, or through aself-inspection, etc.
In principle, while when the violation was discovered through an administrative inspection or aninspection by a self-regulatory organization, strict measures shall be taken accordingly, mitigation
measures may be considered when the violation was discovered through a self-inspection, etc.

(ii) Status of corrective measures after discovery
Measures shall be taken in consideration of responses made after any violation of laws andordinances, etc. was discovered, such as restoration to original state, and the status of improvement toprevent the recurrence.
When it is recognized that immediate and appropriate corrective measures have been taken, it
may be considered as a mitigating factor. In addition, if corrective measures are consideredinsufficient, including the lapse of time, after the discovery of violation of Laws and Ordinances etc.,
the measures may be taken as an aggravating factor.

(6) Whether or not antisocial forces are involved
When any antisocial force is involved in any violation of Laws and Ordinances, etc., strict measures
shall be taken accordingly.
(End)－3－