Financial Services Agency

Administrative Action in the Financial Sector
Basic Administrative ApproachStrict enforcement of transparent and fair financial supervision based on clearrules.

Development and proper implementation of financial rules giving consideration
to ensuring customer protection and market fairness.

Basic Principles


Based on the basic administrative approach, the Financial Services Agency(FSA) has been undertaking administrative action when it establishes, in light ofrelevant laws and regulations, that customer protection and market fairness isbeing harmed. The size, nationality, and type of business of the financial
institutions involved do not affect FSA decisions.

Ensuring Fairness and Transparency in Administrative Action
1. Clear Indication of Regulatory Guidelines and Interpretation in Advance

The FSA's Supervision Guidelines are made publicly available, which include
inspection and supervisory perspectives and workflow of administrative actions.

In the so-called No Action Letter system, when private companies are about tolaunch new businesses, dealings in concrete terms, we receive and respond toinquiries about whether such concrete activities are subject to unfavorabledispositions.

Moreover, to complement the No Action Letter system which deals with thelegality of individual cases, we have introduced ''written inquiry procedures forgeneral legal interpretation,'' allowing for inquiries about general and abstract
legal interpretation.
(note 1) As of March 31, 2023, the FSA's No Action Letter system have received 68 requests
since its introduction in July 2001.
(note 2) Additional elements of ''written inquiry procedures for general legal interpretation,''when compared to the No Action Letter system, include the following:ⅰenabling inquiries about general and abstract legal interpretations besides inquiries
about individual cases.

ⅱ

enabling business associations to inquire by themselves, in addition to individualcorporations.

ⅲ

enabling people other than the professions with special knowledge about the inquiry
matter such as lawyers and certified public accountant to become deputies.

2. Observance of Due Process

Before taking administrative action, we conduct a hearing with financial
institutions concerned in accordance with the Administrative Procedure Law.

Moreover, as a preliminary step toward the above-mentioned procedures set
forth in the Administrative Procedure Law, we have proceedings for theexchangeofopinions

upon

therequestoffinancial

institutions(opinion-exchanging system).
(note) In addition, administrative appeal based on the Administrative Tribunals Examination
Law and judicial appeal based on the Law on Suits against the government areavailable.

3. Ensuring TransparencyIn order to improve predictability in other financial institutions and to prevent
similar incidents from arising, we announce all administrative actions to thepublic, except in cases where such announcement might hinder managerial
improvement in the targeted financial institution, including the announcementof an unfavorable disposition relating to financial soundness.
When announcing such actions to the public, we strive to improve predictability
by clearly stating the underlying facts and supporting laws, regulations andprovisions.

We also compile and publish, on a quarter basis, a collection of cases in whichadministrative action has been taken.

We respond to many requests for disclosure of information each year, based on
the application of the Law Concerning Access to Information held byAdministrative Organs.

Criteria for Administrative Action

1. Prior to taking administrative action, the FSA, as a first step, considers thefollowing aspects, so as to identify the appropriate measures to take.
ⅰ Seriousness and Maliciousness of the Conduct
The extent of the damage to public interests
Whether the financial institution is substantially undermining public
interest, such as undermining confidence in the financial market bydeveloping and providing products that are severely inappropriate in view ofproper disclosure of a customer's financial position.
The extent of damage to customers' interests
Whether numerous customers have incurred damages on a wide scale, andto what extent each individual customer has incurred damages.
Maliciousness of the conduct
Whether the financial institution's act was malicious - for example, whether
it continued to sell similar products despite receiving many complaints fromcustomers.
Length and frequency of conduct
Whether the act was performed over a long or short period of time, andwhether it was performed repeatedly/continuously, or rather a one-off event.
Existence of intention
Whether the act was performed intentionally with awareness of its illegality
and inappropriateness, or due to negligence.
Organized involvement
Whether the act was performed based on a personal decision by the sales
staff on the floor, or whether a manager was involved as well; whether the
top management was involved therein.
Concealment of conduct
Whether there were any attempts to cover up the problem after it wasrecognized; and if so, whether it was organized.
Involvement with antisocial forces

Whether there was any involvement with antisocial forces, and if so, theextent of their involvement.
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Appropriateness of Governance Systems and Operational Control Systems
causing or contributing to the violation
Whether presidents and the board of directors fully recognize the importanceof compliance and take necessary initiatives to ensure compliance
Whether internal audit structures are adequately established and whether theywork in a reliable manner
Whether compliance and risk management structures are well organized andfunction effectively
Whether operational staff recognize the importance of compliance andwhether internal education programs are adequately provided to employees

ⅲ Mitigating Factors
In addition to the above, whether there are any mitigating factors, such as,
whether the financial institution is itself making necessary efforts to protect
customers in a voluntary fashion prior to administrative responses.
In particular, in cases where the financial institution is making voluntary efforts
in an appropriate manner based on the principles that have been shared with theauthorities, this fact will be taken into consideration as a mitigating factor.
2. In consideration of the factors referred to in 1. above and after looking into
whether there are any other factors that should be taken into account, we ultimately
decide on administrative action by examining the following:(1)Whether it is appropriate to let the financial institutions concerned makevoluntary efforts to achieve the necessary improvements in their business
operations.
(2)Whether considerable efforts are required in terms of the business
improvement and whether it is necessary to have the financial institution
concentrate intensively on implementation of business improvements for acertain period of time.
(3)Whether it is appropriate to allow the financial institution to continue itsbusiness operations.
Checking Framework
When considering administrative action, we not only review precedents, but also
carefully conduct checks in multiple sections to ensure fairness.

Inside the FSA, we have established an independent office consisting mainly oflawyers that investigates compliance of the FSA (staff), as well as a desk forreceiving information related to the compliance of the FSA (staff)..

Follow-UpThe principal objective of taking administrative action is to ensure financial
soundness and operational appropriateness of the financial institutions; action
itself is not a goal.

The submission of a business improvement plan is required in response toadministrative action, because the financial institutions are expected to makesubstantial improvements to their systems of their own accord with respect togovernance, risk management and compliance, and the effects thereof are
expected to henceforth be demonstrated continuously.

From this perspective, the FSA focuses on following up on and encouraging thebusiness improvement efforts implemented by the financial institutions.