Financial Services Agency

April 15, 2011 Financial Services Agency SMBC Nikko Administrative actions against joint-stock companies 1. SMBC Nikko A stock company (hereinafter referred to as "our company") has submitted an accident notification based on Article 50, Paragraph 1, Item 8 of the Financial Instruments and Exchange Act and Article 199, Item 7 of the Cabinet Office Ordinance on Financial Instruments Business, etc. , at a branch of the Company, it was reported that a case of fraudulent defrauding of customer assets by a salesperson was discovered after receiving an inquiry from a customer. According to our investigation, the salesperson had been working at the same branch for 14 years and 6 months, and had defrauded approximately 880 million yen from 16 people who had submitted proposals to the investigation since approximately 10 years ago. . 2. In response to this report, the FSA informed the Company of the details of the facts of the fraud case, the cause of occurrence, and the reason why it could not be discovered for a long period of time based on the provisions of Article 56-2, Paragraph 1 of the Financial Instruments and Exchange Act. As a result of requesting and verifying reports, the following problems were found in the management attitude and internal control system regarding compliance with laws and regulations. (1) In response to past scandals, the Company has reviewed its internal control system, but the following problems have been identified, and a system for preventing and early detection of scandals has not been established. The internal control system is inadequate. stomach. There is no system in place to manage and check sales staff who have been working at the same branch for a long period of time. B. Insufficient management of customers who sell a large amount of assets in a short period of time and continue to withdraw funds. c. Insufficient thorough communication to customers that cash acceptance is prohibited in order to prevent fraud by sales staff. D. Insufficient understanding of the living conditions of sales staff by managers and personnel management departments. (2) In addition, the management team also lacked awareness of the fraud risks of sales staff who have been working at the same branch for a long time and the system to check for abnormal withdrawals. It is enough. (3) Although the Audit Department identified the transactions of the victim as requiring caution and confirmed the details of the interviews with the victims at the branch, the verification of individual transactions was insufficient. As a result, scandals have been overlooked for a long time, and internal audits are not functioning. 3. The above situation is deemed to be a situation in which improvements need to be made for the public interest or the protection of investors regarding the business operation or property status of financial instruments business operators stipulated in Article 51 of the Financial Instruments and Exchange Act. . Based on the above, the following administrative actions were taken against the Company today. ○ Business improvement order based on Article 51 of the Financial Instruments and Exchange Law (1) Provide appropriate explanations to customers affected by this scandal and take all possible measures to deal with customers. (2) Investigate the root cause of this matter, summarize the location of the problem, and enhance and strengthen the business management system and internal control system from the following perspectives. stomach. In order to prevent similar scandals, under the leadership of the management team, we will verify the state of the business management system and internal control system, check for abnormal fluctuations in customer assets, deposits and withdrawals, etc., and conduct daily interaction at branches. Formulate drastic measures to prevent recurrence, including strengthening checks and balances and reviewing the personnel management system. B. Foster company-wide awareness of compliance with laws and regulations, such as training for officers and employees. c. Clarify the management stance of working to comply with laws and regulations. (Including clarification of where responsibility lies.) D. Ensure the effectiveness of the internal audit function. (3) Report the business improvement plan concerning the above to the Financial Services Agency in writing by May 13, 2011, and immediately implement it. In addition, for the time being, the progress and status of implementation shall be reported on a quarterly basis.