Risk Management and Compliance System

As stipulated in the Fuyo Lease Group risk management regulations, we have established a risk management system at our locations across the globe in order to manage risks based on their particular risk characteristics and importance.

Risks to be managed are categorized into credit, market (such as interest rate fluctuation risk), liquidity (such as cash flow risk), administrative, system, legal, human, reputation, and other risks. Each type of risk is managed by a designated department.

The Board of Directors and the Executive Committee receive updates on risk management, discuss risk management policies according to the characteristics and importance of each risk, and evaluate the effectiveness of risk management. The Asset and Liability Management (ALM) Committee meets on a regular basis to appropriately manage and control market and liquidity risks. These efforts enable us to continually improve our risk management system.

For risk events that may affect the Group’s business, the Group has sought to comprehensively identify risks facing each Group business considering the scale and characteristics of the identified risks while making sure to include risks in each business domain, such as economic downturns, market fluctuations, and downturns in individual markets.

In addition, as a risk governance system for the entire group, we have established a "Three-Line Defense System" based on risk management by each business unit (first line), risk management by the risk control department and the department in charge of risk (second line), and verification by the internal audit department (third line).

The designated risk management division formulates a basic policy for managing risks identified as targets, and conducts an appropriate analysis, evaluation and measurement of risks according to the size and characteristics of the relevant business and risk profiles. In addition, the designated risk management division monitors the status of risks held from an independent perspective, reports the results of monitoring to the Executive Committee, etc., and implements supervision of sales and marketing divisions with an approach geared to the situation.

Moreover, the risk control division has established integrated risk management systems to promote risk management by comprehensively identifying and evaluating risks by risk category, and to control risks within the scope of management capabilities.

In order to foster a corporate culture that enables risk prevention and that can take appropriate measures against risks, the Fuyo Lease Group regularly conducts training that includes content related to risk management. For example, in the leasing industry, legal risks are expected to be high, so training is conducted for new employees on regulatory laws and regulations. We focus on training using case studies and other methods so that each employee can deepen their understanding of possible risks in their work and take appropriate measures.

At the Fuyo Lease Group, ensuring compliance is a fundamental principle of management. We work to strengthen and enhance our compliance system, which enables us to operate with integrity and fairness by conforming to relevant social norms, while complying with laws and regulations.

We promote compliance throughout the Group by stipulating various regulations, procedures, and manuals, conducting compliance education, and enhancing the whistleblower system on the basis of the Fuyo Lease Group's Code of Corporate Conduct. In order to maintain and further improve our compliance systems, we implement and carry out compliance programs every fiscal year. Issues associated with the compliance programs are discussed at the Compliance Committee and the Executive Committee before being submitted to the Board of Directors for approval. Findings and progress of the programs are reported to the Board of Directors on a semi-annual basis.

The core of group compliance system is the Compliance Committee chaired by the Chief Compliance Officer and vice chaired by the Group Legal and Compliance Division Officer. The heads of relevant planning and administrative departments, the heads of relevant departments of domestic and overseas subsidiaries serve as full-time committee members, and outside lawyers serve as outside members. To verify the effectiveness of the compliance system for the entire group, the Compliance Committee meets every three months to deliberate and report on the formulation and progress of the Group's compliance program, whether or not compliance problems have occurred and how to deal with them, and trends in the enactment, revision, or abolition of major laws and regulations. In addition, at least once every three years the internal audit division conducts audits on the status of compliance with laws, regulations, and rules stipulated in the Fuyo Lease Group Basic Compliance Policy, fair business practices, risk management, and management of information assets, among other items, and the findings are used to consider improvements and other measures to further strengthen the compliance system.

We will continue our group-wide activities including management and implementation of compliance measures and compliance education, and streamlining our compliance systems across the Group to improve their effectiveness.

The Fuyo Lease Group has formulated the Fuyo Lease Group Basic Compliance Policy, which specifies the basic policies and position of the entire group as well as behavioral guidelines for the employees of the Group.

We conduct training programs and offer e-learning courses to all employees to enhance the effectiveness of the this Basic Policy. These programs and courses ensure that all employees are aware of the Basic Compliance Policy, and evaluation of the training is regularly reviewed.

The Fuyo Lease Group operates whistleblower hotlines.

In addition to the in-house compliance hotline, we provide a consultation service desk through a cooperating law firm. These services are available on a regular basis and guidance to these services is always posted on the company's intranet bulletin board. Concerned individuals can immediately seek consultation or report whenever they detect any violations of the law, the Basic Compliance Policy and other corporate regulations, harassment cases, misconduct in information management or other potential infringements. The whistleblower systems accept anonymous reports to protect whistleblowers.

Compliance Officers^* as well as persons in charge of compliance are appointed as consultants within their departments and group companies to handle individual cases. In the event of non-compliance or a suspected violation, compliance personnel such as compliance officers are responsible for taking appropriate measures and conducting investigations and reports in accordance with instructions and orders from Fuyo Lease's Group Legal and Compliance Division and the heads of the compliance departments of the relevant group companies as per the Compliance Manual.

Furthermore, Fuyo Lease has appointed full-time corporate auditors as a contact point for receiving whistleblower reports from group companies, and we have also set up a contact point at affiliated law firms for whistleblowing from employees of overseas subsidiaries.

In fiscal 2022, 10 reports were received through the hotline. In each case, investigations are promptly conducted, such as confirming the facts with the parties concerned with due care to protect whistleblowers against detrimental treatment and taking appropriate measures. All cases have been resolved, and measures put in place to prevent recurrences.

The implementation of fair and transparent transactions based on the principle of free competition is clearly stated in section 4. Fair Business Practices and Chapter 9, Relations with Politics and Governments of the Fuyo Lease Group Basic Compliance Policy. We prohibit corruption, including bribery, and any actions that could be suspected of being corrupt, and facilitation payments are no exception. The Management Committee and Board of Directors of Fuyo Lease oversee these policies and their management status and receive periodic reports from the Compliance Committee.

In order to prevent corruption and bribery and bring about its early detection, the Company implements compliance audits in addition to identifying businesses, intermediaries and business partners that are high risk in the flow of its operations and avoiding involvement with them. In business audits, risks regarding the identification and prevention of corruption and bribery are appropriately evaluated based on confirmation of items such as proper use of entertainment expenses and the existence of a long-term employees in the sales department. Furthermore, for cases that are considered to be particularly high risk, we confirm that the compliance officer has further evaluated the appropriateness, and we are thoroughly preventing corruption and bribery.

We inform all Group employees about the Basic Compliance Policy and the prohibition of corruption and bribery, and encourage them to report to and seek consultation with the Whistleblower Hotline whenever they have any suspicions. Support is also available anonymously.

Furthermore, the Basic Compliance Policy strictly prohibits the forging of collusive ties with political and administrative authorities and business partners, and the private use of the company's assets. In fiscal 2022, no infringements related to corruption were found in the Group. Additionally, no employees were dismissed or subjected to disciplinary action due to corruption.

In fiscal 2022, the Company made no political donations.

The Fuyo Lease Group emphasizes employee training programs that are designed to ensure compliance. Our training programs include workplace compliance training and e-learning on insider trading regulations for all Group employees, as well as group training conducted by external instructors for directors, heads of departments, offices and branch offices, presidents of Group companies, and departmental compliance officers. ^*

The Fuyo Lease Group is striving to prevent money laundering and funding of terrorism.
Fuyo Lease complies with laws and guidelines together with a thorough due diligence of its business partners in accordance with its Policy for the Prevention of Money Laundering. In addition, we have established a system to prevent money laundering and funding of terrorism not only in Japan but also in transactions outside Japan.

Furthermore, we continuously strive to promote understanding by way of training for all group employees and by inviting outside experts to train the compliance and legal staff of each group company.

At the request of the Tokyo Stock Exchange, Fuyo Lease has joined the J-IRISS^*, which aims to prevent unfair trading and to maintain the transparency and impartiality of the market.