Silviase/jgov_v1.4_full_ann huggingface dataset:
### b. Developments regarding Supervision of Deposit-Taking Financial Institutions

- Major Banks

57. Measures taken based on the Annual Supervisory Policy for Major Banks for Program Year 2013

In the program year 2013, in accordance with “Basic concepts on supervision of financial institutions” as shown below, the FSA placed priority on the areas of (i) performing an active financial intermediary function, including management support for small and medium enterprises (SMEs); (ii) risk management and stability of the financial system; and (iii) improvement of customer protection and convenience for users, and supervised major banks while striving to have straightforward and in-depth dialogue with them. In addition, the FSA strived to understand conditions and issues facing financial institutions, by enhancing the integration of on-site and off-site monitoring, in accordance with the Financial Monitoring Policy.

### 58. Basic concepts on supervision of financial institutions

To have “Better Regulation” become further embedded and deepened, the FSA took the following approaches: (i) financial supervision and administration with a high risk sensitivity; (ii) financial supervision and administration from a citizen’s and user’s point of view; (iii) supervisory response with a forward-looking perspective; and (iv) supervisory response which contributes to financial institutions’ improvement of their management and making better business judgments. Especially, it is increasingly important that major banks fully recognize their expected roles, and the management personnel should make responsible and prompt business judgments to respond to sudden social and economic changes and to international regulatory reforms. Under these recognitions, the FSA (i) required major banks, under the appropriate leadership of management personnel, to enhance their governance and risk management systems; and (ii) urged them to properly verify the sustainability of their business models, and to devise short and medium to long-term business strategies, including capital policy. The FSA pushed this further through discussions with the management of major banks, as necessary. Furthermore, financial administration, if implemented through regulations only, may cause distortions in the regulatory regime and result in excessive control, which may negatively impact the real economy. Therefore, the FSA will endeavor to improve the quality of supervisory administration while reducing regulatory costs on a medium to long-term basis by improving the self-discipline of financial institutions and its own capabilities as a supervisory authority.
59. Performing an active financial intermediary function, including management support for SMEs

To pull Japan out of deflation and achieve powerful growth, financial institutions are expected not only to support business improvement and recovery of customer enterprise, but also to play their primary role more effectively and give strong support for the development and growth of their customer enterprises, by actively providing funds including new loans, while controlling risk appropriately.

With regard to response to the Great East Japan Earthquake from financial aspects, successively from the program year 2012, the FSA (i) checked whether each financial institution appropriately responded to consultations and requests for altering lending terms in ways to suit the situation of borrowers; and (ii) in an effort to handle the overlapping debt problem, confirmed whether each institution promptly and effectively responded to borrowers' consultations and requests. In addition, the FSA also checked whether each financial institution appropriately met money demand toward restoration and reconstruction, and disaster-affected people's rehabilitation of livelihood and business operations.

The FSA considered the program year 2013 crucial for financial institutions to start their full scale support for improvement of SMEs' business profiles, and reinforcement of business structure. Accordingly, even after the expiry of the SME Financing Facilitation Act (hereinafter, "SME Act"), the FSA continuously urged financial institutions to provide fine-tuned support for SMEs, to endeavor to provide a smooth supply of funds, in response to changes in their loan terms, or other measures, and to actively perform consulting functions for enterprises, while cooperating as necessary with outside experts and organizations and other financial institutions. The FSA also checked whether financial institutions give appropriate advice on not only financial aspects but also issues concerning the management of the borrower enterprises, whether they provide support for devising highly effective business rehabilitation plans, and whether they make active and appropriate efforts to invigorate regional economies and facilitate finance in the regions, taking into account the purpose of the Act on Regional Economy Vitalization Corporation of Japan ("REVIC Act").

Furthermore, as for initiative for loans to individuals, such as mortgage loans and loans to consumers, the FSA engaged in understanding the situation as to whether banks were dealing properly with loans to individuals considering their own needs.

The FSA continued to verify major banks’ efforts to promote new loans that would contribute to business improvement, business recovery, development and growth of their customer enterprises. In addition, the FSA confirmed
whether major banks provided advanced financial products and services that were needed but unavailable from other providers in the industry. Such advanced financial products and services included assistance for overseas expansion, support for starting up operations and new businesses through the provision of equity, encouragement for infrastructure development through project finance, and retail financial products that met recent customer's needs, including NISA, deposit and trust for educational funds. At the same time, the FSA also confirmed whether there was an adequate group-wide synergy effect.

### 60. Risk management and financial system stability

It is vital for major banks to ensure robust and comprehensive risk management thoroughly under appropriate management control (governance). This is necessary not only for the financial soundness of each financial institution and overall stability of the financial system, but also for major banks to fully perform financial intermediary functions by providing a stable supply of funds to support the growth of private companies as well as the real economy in a changing environment. Based on these points, the FSA continued to monitor the situation of macro economy and financial markets, while enhancing its own risk sensitivity as a supervisor, and encouraged voluntary efforts by individual financial institutions, considering the following points: (i) risk areas which should be focused on; (ii) improved risk management techniques; and (iii) enhancement of financial foundations. The FSA conducted in-depth supervision, particularly of financial groups operating large, complex businesses both in Japan and overseas given that the deterioration of these financial groups will likely cause a significant impact on the entire financial system. The FSA supervised these financial groups from the macro-prudential perspectives while encouraging closer cooperation with the Bank of Japan and foreign authorities. In particular, the FSA focused on the following points: (i) enhancement of group governance system; (ii) actions to comply with the Basel III standard; (iii) recovery and resolution plans (RRPs); (iv) stress testing; (v) management information systems; (vi) legal compliance systems; and (vii) human resource management.

### 61. Improvement of customer protection and convenience for users

Improving customer protection and increasing convenience for users in financial institutions not only contribute to developing a sound national economy, but also help to stabilize the Japanese financial system by enhancing citizens' trust in financial institutions. It is important for financial institutions to ensure the protection of customers' interest and a sense of security and trust. In doing so, managers of a financial institution should fully provide leadership in
establishing a solid business system, while implementing measures such as strict control of customer information, prevention of the abuse of dominant bargaining power, and management of conflicts of interest. For customer protection, particularly, nominal compliance with laws is insufficient; financial institutions should fully understand the effects and purposes of specific laws, identify compliance levels required by customers and society, and meet their expectations, as highly public financial institutions that are expected to be reliable.

Considering the above, as a supervisor, the FSA verified major banks with a focus on the following items: (i) ensuring business continuity; (ii) thorough management of information security; (iii) maintenance and improvement of reliability and transparency of the benchmark interest rate; (iv) establishment of systems for people with disabilities; (v) enhancement of the system for selling risky products; (vi) enhancing systems for processing consultations and complaints from customers; and (vii) preventing abuse of financial functions.

62. Revision of Comprehensive Guidelines for Supervision of Major Banks, etc.

These supervisory guidelines were formulated on October 28, 2005, and then have been revised as needed, in order to respond appropriately to environmental changes and new issues. In the program year 2013, they were amended as follows $ (63\sim73^{13}) $ .

63. Revision based on the recommendations of “Summary of discussions in the ‘experts’ meeting on the follow-up to the financial ADR system” (August 2, 2013)

The FSA made a revision to reflect the recommendations of “Summary of discussions in the ‘experts’ meeting on the follow-up to the financial ADR system” published on March 8, 2013 (establishment of framework for the contribution to the improvement of convenience for users in each financial institution) (applicable from August 2, 2013).

64. Revision pursuant to the amendment to administrative notice on the capital adequacy rules under domestic standards (November 22, 2013)

In response to the introduction of the new capital adequacy requirements (new domestic standards) that have been gradually applied from the end-March 2014 (promulgated March 8, 2014), the FSA made a revision to the supervisory guidelines and policies in consideration of appropriateness and accuracy of equity capital (applicable from March 31, 2014).
65. Revision that reflects the application of the “Guidelines for Personal Guarantee Provided by Business Owners” (January 31, 2014)

In light of promoting active use of the guidelines by financial institutions and to familiarize and popularize them as lending practices, the FSA made a revision specifying the points for the establishment of a framework pursuant to the guidelines (applicable from February 1, 2014).

66. Revision pursuant to the amendment to administrative notice on the capital adequacy rules under domestic standards (third pillar) (February 18, 2014)

In response to the introduction of the new capital adequacy requirements (new domestic standards) that have been gradually applied from the end-March 2013 (promulgated March 8, 2013), the FSA made a revision on disclosure related to the capital adequacy ratio (applicable from March 31, 2014).

67. Revision that reflects the review of restriction on holding of voting rights by a bank (so-called 5% rule) (March 31, 2014)

The Banking Act was revised to accommodate the Act for Partial Revision of the Financial Instruments and Exchange Act, etc. that was established in June 2013 (hereinafter, “Amended FIEA 2013”). As a result, a revision was made so as to allow banks to flexibly provide capital. Accordingly, the FSA made a revision specifying the points for risk management to the supervisory guidelines and policies (applicable from April 1, 2014).

68. Revision that reflects the introduction of fit and proper requirements for auditors of banks (March 31, 2014)

The Banking Act was revised to accommodate the Amended FIEA 2013, with the introduction of fit and proper requirements for auditors and the audit committee member of banks. Accordingly, the FSA made a revision to the supervisory guidelines (applicable from April 1, 2014).

69. Revision that reflects the review of regulation on scope of a bank’s subsidiary company concerning overseas M&As (March 31, 2014)

The Banking Act was revised to accommodate the Amended FIEA 2013. As a result, in the case of overseas M&As by banks, banks are allowed to hold the acquired foreign financial institution's subsidiary companies that do not fall on an eligible subsidiary company for a certain period. Accordingly, the FSA made a revision to the supervisory guidelines (applicable from April 1, 2014).

70. Revision that reflects the “Principles for effective risk data aggregation and risk reporting” issued by the Basel Committee (June 2, 2014)

Referring to the “Principles for effective risk data aggregation and risk reporting” that were announced by the Basel Committee in January 2013,
global systemically important banks (G-SIBs) are required to follow the principles by the beginning of 2016. In response to this situation, the FSA made a revision to the effect that it will perform supervision with attention to the contents of the “Principles for effective risk data aggregation and risk reporting” in respect of the implementation of initiatives aimed at the development and improvement of the infrastructure, process, and framework necessary to aggregate the risk data (applicable from June 2, 2014).

71. Revision related to the disclosure of the indicators for assessing G-SIBs (June 2, 2014)

The FSA made a revision to the effect that, in the case where the denominator of the leverage ratio of a holding company exceeds EUR 200 billion, the FSA may request the financial institutions to disclose the indicators appropriately for assessing G-SIBs pursuant to the instructions published by the Basel Committee (applicable from June 2, 2014).

### 72. Revision related to the response against anti-social groups (June 4, 2014)

Based on the “Encouraging the Efforts to Sever Relationships with Antisocial Groups” published by the FSA in December 2013, the FSA made a revision aimed at promoting efforts to sever relationships with antisocial groups (applicable from June 4, 2014).

73. Revision regarding the introduction of outside directors in listed banks (June 4 2014)

The FSA made a revision on two points in the case of listed banks: (i) at least one independent outside director is required; and (ii) a bank holding company specified as a global systemically important financial institution (G-SIFI) is urged to place a committee or to ensure the selection of independent outside director(s) for a major bank owned by the above holding companies, even if it is a non-listed company (applicable from June 4, 2014).

## Regional Financial Institutions

74. Measures taken based on the Annual Supervisory Policy for Regional Financial Institutions for Program Year 2013

In the program year 2013, in accordance with “Basic Concepts on Supervision of Financial Institutions” as shown below, the FSA placed priority on the areas of: (i) performing an active financial intermediary function including management support for SMEs; (ii) risk management and stability of the regional financial system; and (iii) improvement of customer protection and convenience for users, and supervised regional financial institutions while
striving to have straightforward and in-depth dialogue with them. In addition, the FSA strived to understand conditions and issues facing financial institutions, by enhancing the integration of on-site and off-site monitoring, in accordance with the Financial Monitoring Policy.

### 75. Basic concepts on supervision of financial institutions

To have “Better Regulation” become further embedded and deepened, the FSA took the following approaches: (i) financial supervision and administration with a high risk sensitivity; (ii) financial supervision and administration from a citizen’s and user’s point of view; (iii) supervisory response with a forward-looking perspective; and (iv) supervisory response which contributes to financial institutions autonomously improving management and making better business judgments. Especially, in the program year 2013, the FSA discussed with the management teams, if necessary, and implemented the following measures: under the appropriate leadership of management personnel, regional financial institutions have enhanced their governance and risk management systems including capital policy. Furthermore, the FSA announced that financial administration, if implemented through regulations only, may cause distortions in the regulatory regime and result in excessive control, which may negatively impact the real economy. Considering this, the FSA endeavored to improve the quality of supervisory administration while reducing regulatory costs on a medium to long-term basis by improving the self-discipline of financial institutions and its own capabilities as a supervisory authority.

### 76. Performing an active financial intermediary function including management support for SMEs

To pull Japan out of deflation and achieve powerful growth, financial institutions are expected not only to support business improvement and recovery of customer enterprise, but also to play their primary role more effectively and give strong support for the development and growth of their customer enterprises, by actively providing funds including new loans, while controlling risk appropriately.

As such, it is important to encourage regional financial institutions to become actively involved in the provision of new loans that will contribute to business improvement and recovery, development and growth of customer enterprises, taking into consideration the “Japan Revitalization Strategy.”

Considering the above, in the program year 2013, the FSA supervised the performance of financial intermediary functions by regional financial institutions from the following viewpoints.

(1) Response to reconstruction following the Great East Japan Earthquake
from financial aspects

A. The FSA confirmed whether regional financial institutions in the disaster-affected areas provide support—such as recommending and implementing optimum solutions including various public support measures for disaster-affected people after a fine-tuned analysis of the conditions surrounding each disaster-affected person—and whether they proactively took part in the efforts of local governments and other parties to promote extended restoration and revitalization in the disaster-affected areas. Further, as reconstruction demand gets into full swing, the FSA also checked whether each regional financial institution appropriately meets money demand toward restoration and reconstruction, and disaster-affected people’s rehabilitation of livelihoods and business operations.

B. As a response to the so-called double loan problems, the FSA verified whether regional financial institutions are providing careful explanations to disaster-damaged companies about the roles and functions of the Corporation for Revitalizing Earthquake Affected Business, Prefectural Industrial Recovery Consultation Centers, and Prefectural Industrial Reconstruction Corporations, and consider the proactive utilization of these organizations along with disaster-damaged companies. In doing so, the FSA also verified whether regional financial institutions positively considered bringing applications for Credit Guarantee Association-guaranteed loans to these organizations with a view to supporting disaster-affected people.

Furthermore, the FSA checked whether regional financial institutions analyze further details of disaster-affected people’s situations, provide them with careful explanations about the advantages and effects of utilizing the Individual Debtor Guidelines, and proactively recommend utilization in accordance with their respective conditions.

C. In order to encourage financial institutions, which received capital injection under the Act on Special Measures for Strengthening Financial Functions' provision for earthquake-related special cases, to contribute to the reconstruction of victims' businesses and lives on a continuing basis, including the active use of the Corporation for Revitalizing Earthquake Affected Business, Prefectural Industrial Recovery Consultation Centers, and Prefectural Industrial Reconstruction Corporations and the Individual Debtor Guidelines for Out-of-Court Workouts. The FSA properly followed up the implementation of business-enhancing plans of these financial
(2) Promotion of initiatives of new loans by financial institutions which puts emphasis on growth potential

The FSA encouraged the active involvement of regional financial institutions in the provision of new loans, by verifying their efforts to promote new loans through examination of 13 check points regarding the approach state of new loans leading to business improvement, business recovery, development and growth of their customer enterprises.

## (3) Deepen region-based relationship banking

Up to now, regional financial institutions have been making efforts to promote region-based relationship banking. They should continue and reinforce such efforts involving an entire organization, by setting up a business model looking ahead to the future, recognizing that region-based relationship banking is a way to contribute to users, the economy, and society in the relevant region, as well as improving their own financial profiles.

Based on the above, the authorities focused on the following points in checking regional financial institutions' region-based relationship banking through such measures as various hearing interviews, including those with top managers.

A. For the purpose of sharing of knowledge and know-how about the initiatives of region-based relationship banking, the FSA held a symposium regarding region-based relationship banking in local finance bureaus across the country (11 locations). The FSA also conducted functional improvement in the symposium through the involvement of the top management of some regional financial institutions with “supporting roles of region-based relationship banking” at the symposium sponsored by local finance bureaus outside the main business areas. In addition, the management gave a keynote speech about the supports for SMEs (February to March 2014).

B. The FSA honored eligible regional institutions for “especially advanced initiatives” and “preferable initiatives widely used.” The FSA selected honored financial institutions who have continuously promoted the initiatives with “fulfillment of consulting functions for customers” and “active participation in overall regeneration in the region” on a medium- to long-term perspective (February to April 2014).