bcbs ) and the financial stability board ( fsb ) have now put in place peer review mechanisms to ensure that national jurisdictions comply with international standards in right measure and spirit. these are in addition to the existing assessments of compliance of jurisdictions to international standards done by the international monetary fund ( imf ) / world bank, under the financial sector assessment programs ( fsaps ). within national jurisdictions, regulators / supervisors and financial sector entities have realized the significance of the compliance function in ensuring good conduct of business at the entity level and facilitating a safe and sound banking system at the systemic level. consequently, assessment of compliance is increasingly being focused on in supervisory oversight. is compliance a specific risk area? 8. the basel committee on banking supervision, in its guidance “ compliance and the compliance function in banks ”, issued in april 2005 states “ the compliance function is an independent function that identifies, assesses, advises on, monitors and reports on the bank ’ s compliance risk, that is, the risk of legal or regulatory sanctions, material financial loss, or loss to reputation a bank may suffer as a result of its failure to comply with laws, regulations, rules, related self - regulatory organization standards, and codes of conduct applicable to its banking activities ”. 9. what is the “ compliance risk ” referred to above? is it an independent risk that banks need to manage just as they manage credit risk, market risk or operational risk? is it a subset of another risk or is it simply a function that needs to be performed as part of banking bis central bankers ’ speeches business? in the era of traditional banking business, simple products, and intense regulation, compliance was relatively simple. banks had to comply with the provisions of the specific acts and regulations set by the regulators. compliance then could be identified simply as a function to be discharged as part of business. however, with globalization, liberalization, increased adoption and integration of it in the business processes along with the introduction of new, innovative and complex products, the compliance function has gained in stature and significance. while compliance may still not be considered an independent “ risk ” function, over the last few years, it has definitely evolved as an independent function in banks that impacts other risk / s. 10. compliance is generally considered to be a part of operational risk. under basel ii, operational risk is defined as “ the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. this definition includes legal risk, but excludes

other hand, the government and the central bank have been strongly pursuing initiatives to work on forward - looking expectations. the government has been working to raise expectations for economic growth by increasing public spending and promoting regulatory and institutional reforms. the bank has set the 2 percent price stability target and has been conducting large - scale monetary easing with the aim of achieving this target at the earliest possible time, and thereby continues to provide strong support from the financial side to ensure sustainable economic recovery. in the corporate sector, if there is a continuation of nonmanufacturing firms ’ innovations and fixed investment that i mentioned earlier, their labor productivity will rise further, which could lead to continuous improvement in the income outlook. taken altogether, with the prospect of sustainable improvement in economic activity, it is possible that the proportion of people who are oriented to forward - looking expectation formation will increase. of course, whether japan ’ s economy will move in line with the scenario i mentioned earlier is uncertain, as the environment surrounding firms and households remains severe. at the same time, however, macro data and information from interviews with firms – both of which indicate sustainable improvement in consumption and income – as well as the recent gradual rise in medium - to long - term inflation expectations suggest that japan ’ s economy as a whole seems to be gradually moving in line with this scenario. taking account of this mechanism, i see some possibility that medium - to long - term inflation expectations will rise. bis central bankers ’ speeches ii. monetary policy a. conduct of monetary policy let me now explain the policy framework of quantitative and qualitative monetary easing ( qqe ) introduced at the monetary policy meeting held on april 3 and 4, 2013, and the state of progress in its implementation ( charts 15 through 18 ). first, the bank conducts money market operations so that the monetary base will increase at an annual pace of about 60 – 70 trillion yen. second, it purchases japanese government bonds ( jgbs ) so that their amount outstanding will increase at an annual pace of about 50 trillion yen, and the average remaining maturity of the bank ’ s jgb purchases will be about seven years. third, it purchases exchange - traded funds ( etfs ) and japan real estate investment trusts ( j - reits ) so that their amounts outstanding will increase at an annual pace of about 1 trillion yen and about 30 billion yen, respectively. and fourth, for cp and corporate bonds, the bank continues with these asset purchases until their amounts outstanding reach 2. 2 trillion