Legal and Compliance Management System

Master Policy on Legal Compliance

The Bank is committed to establishing a corporate culture that places priority on strictly complying with laws and regulations and realizing compliance to satisfy society’s expectations for financial institutions to maintain the confidence of customers and society and legally and appropriately implement businesses.

The Bank has established its master policy “Internal Control Programs,” based on the Companies Act and the Order for Enforcement of the Companies Act resolved at the Board of Directors’ Meeting to strengthen the framework to secure proper implementation of businesses by the Bank and its subsidiaries. In addition, it has formulated the “Code of Conduct & Ethics,” based on which officers and employees comply with laws and regulations when performing tasks. The “Code of Conduct & Ethics” is the core principle in training of newcomers to our Bank. We request them to submit the “Acknowledgment of Code of Conduct and Ethics” where they pledge that they understand and comply with the “Code of Conduct & Ethics,” and all officers and employees are also required to submit the “Annual Acknowledgment of Code of Conduct and Ethics.”

Furthermore, the Bank has developed its master policy “Legal and Compliance” on legal and compliance to improve and firmly establish the compliance framework, and created detailed internal rules on the laws and regulations to be complied with and the actions to be taken based on this master policy.

The Bank develops the “Annual Compliance Program” as a specific action plan to realize the compliance framework. The progress and achievement status is reported to the Audit and Compliance Committee and the Board of Directors semiannually.

Legal and Compliance Framework

The Board of Directors has established the Audit and Compliance Committee, which consists of outside directors, to review key issues on internal control. This committee confirms or verifies appropriateness and effectiveness of internal control including the compliance framework and reports the results to the Board of Directors. The Audit and Supervisory Board has made validation independently and conducted efficient and effective audits such as cooperating with the committee by having all auditors participating as observers.

The Compliance Management Division, led by the Head of Compliance and Governance as the Supervising Division, has developed internal rules on compliance and maintained and improved compliance awareness of officers and employees by conducting training and awareness enhancement activities. To be specific, the Bank periodically conducts Compliance Leader Training, Internal Administrator Training and e-learning for all officers and employees, and the person in charge in the Compliance Management Division visits business divisions and holds workshops to clear questions on compliance that arise in the course of daily business.

The Bank has appointed a “Compliance Leader” for each division and branch to respond to reports and inquiries on compliance from employees, conduct training and awareness enhancement activities at each division and branch, and handle and check compliance matters.

Aozora Hotline Program, Compliance Monitoring Program

The Aozora Group has the Aozora Hotline Program, in-house and outside (a law firm) channels for whistle-blowers to directly report conduct that violates or may violate laws and internal rules, to prevent violation of laws and misconduct, find them early and take corrective actions. When using the program, the employees are not subject to any disadvantages including disciplinary actions because of making a report to the Hotline, and the identity of a whistle-blower is kept strictly confidential.

It also has the Compliance Monitoring Program, which enables the General Manager of the Compliance Management Division to directly send e-mails to ask employees about events that can be subject to reporting via the Hotline.

Prevention of Transactions with Anti-Social Elements

The anti-social elements are not only organized crime groups and their members, but also the persons and groups that threaten peace and safety of civil life such as individuals and entities that have relations with organized crime groups and their members. The Bank has determined to keep a firm position toward anti-social elements in its “Procedure for Elimination of Anti-Social Elements,” and established a system for research and system check of various transactions to prevent any transactions with anti-social elements. The Bank checks existing customers at least once a year even when there was no such data on them at the initial checking. In addition, the Bank introduces a clause to exclude anti-social elements from transactions such as loans and deposits. The clause makes anti-social elements hesitate to make a transaction and becomes a contractual basis to cancel a transaction when it is found that the counterparty is an anti-social element after a transaction starts. As for the case where the counterparty is found to be an anti-social element after a transaction starts, the Bank has a system to closely work with external expert organizations such as police and take actions to cancel the transaction.

The Bank monitors and reports to the Management Committee,the Audit and Compliance Committee and the Board of Directors about the status of eliminating transactions with anti-social forces in the Aozora Group including Aozora subsidiaries.

As the Supervising Division for measures for anti-social elements, the Compliance Management Division has established the Financial Crime Management Office for central management of all relevant information, and shared its database with Aozora Group companies.

Anti-Money Laundering and Anti-Terrorism Financing Policy

Money laundering means to conceal the origin of illegal profits from crimes such as illicit drug sales by transferring the funds among the accounts of financial institutions and/or financial products. Meanwhile, terrorists and/or criminals of billing fraud also misuse accounts of financial institutions, and financial institutions need to prevent that.

The Bank positioned measures to prevent money laundering and financing for terrorism as a critical business challenge, developed internals rules including “KYC Procedure” to prevent them and put in place an anti-money laundering and anti-terrorism financing system. To be specific, the Bank confirms a customer’s identifying matters including name and address and customer management matters such as purposes of a transaction and occupation when starting repeated transactions or large cash transactions, or when trading with a person who resides or stays in a specific country.

The Head of Compliance and Governance, as Head of KYC Supervisors, appoints the KYC Supervisor for each branch and division, and issues instructions on verification of suspicious transactions, determination of whether to conduct transactions and approval on executing transactions. When use of an account for the purpose of billing fraud, etc., is found, the account shall be frozen immediately to prevent expansion of damages.

The Compliance Management Division supervises the anti-money laundering and anti-terrorism financing program of the entire Bank and Group through its Financial Crime Management Office and conducts internal training for anti-money laundering periodically.

Legal Check

When introducing new products, services or business processes, the Bank carefully checks whether they comply with laws and internal rules based on risk-based approaches. For example, it is necessary to make pre-consultation with the Compliance Management Division and ask for confirmation or verification of legitimacy. The Bank also strictly reviews loan contracts that are not based on the Bank’s format and outsourcing contracts on business processes that handle customer information. In addition, the Bank uses external lawyers for verification regarding cross-border deals or those using a complex system.

Insider Trading Prevention

To prevent insider trading by officers and employees, the Bank has established the central management system on material information, where General Managers are responsible for managing material information held by divisions or branches as Material Information Manager, and the Compliance Management Division supervises the management status of material information at branches and divisions as the Central Management Division. This system strictly manages insider information obtained by officers and employees performing their duties.

To be specific, when officers and employees obtain information that may be classified as material information, it is necessary to conduct strict information management in the division after prompt reporting to the General Manager who is Material Information Manager, and report to the Central Management Division immediately. In addition, it is prohibited to share the material information with a third party unless it is necessary for business.

When officers and employees trade specified securities issued by listed companies including Aozora to perform their tasks or for themselves, they should check with the Central Management Division on whether the Bank has material information on the said issuer. When the Central Management Division concludes that the Bank holds such material information, it is required to cancel the said transaction.

For thorough understanding by officers and employees, we conduct training on insider trading prevention in our annual Compliance Leader Training as well as e-learning for all officers and employees on annual basis. In addition, we ask all officers and employees to submit the “Written Oath on Personal Investment” every year where they pledge that they comply with the internal rules on insider trading prevention and respective regulations and not to violate these rules at any time.

Efforts to Prevent Bribery

The Bank has developed internal rules on payment procedure for business expenses, to process business expenses such as business traveling expenses to the proper extent and efficiently maintain appropriate trading relationships with customers and normal relationships with public officials, and avoid a risk that officers and employees breach the National Public Service Ethics Act, etc., and then are accused of a crime of bribery, criminal breach of trust, etc.

Trust Business Management

The Bank established “Basic Policy for Trust Business” to protect trustors and beneficiaries, and to run sound and adequate operations as a trust corporation and financial institution. Further, while the Bank complies with the Trust Act, the Trust Business Act, the Act on Engagement in Trust Business Activities by Financial Institutions, and other related laws and regulations, the Compliance Management Division under the responsibility of the Executive Officer in charge of matters concerning trust business management supervising “Management of trust underwriting,” “Analysis of trust underwriting,” “Management of trust property investment management” and “Overall management of trust property management” seeks to secure the appropriate trust business management. In addition, the division regularly reports the validation results to the Management Committee.

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